-----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, NCo2hDIngtfiXjQHdJRHkGcCYPG3NUrWuRYpyenyjAGcE8K2IfQiiyzdC8mhqgQp N1ncoCwo0rzRWWt84g6NTg== 0000950123-99-007247.txt : 19990809 0000950123-99-007247.hdr.sgml : 19990809 ACCESSION NUMBER: 0000950123-99-007247 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990806 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: 99679454 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 JUNE 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 ____ (check) No ____ At June 30, 1999, the registrant had 217,622,706 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 June 30 (IN MILLIONS OF US$, EXCEPT PER SHARE AMOUNTS) Second quarter Six months ---------------- --------------- 1999 1998 1999 1998 ------ ------ ------ ------ REVENUES Sales and operating revenues $1,776 $1,986 $3,598 $3,939 Other income (note 5) 59 19 78 37 ------ ------ ------ ------ 1,835 2,005 3,676 3,976 ------ ------ ------ ------ COSTS AND EXPENSES Cost of sales and operating 1,396 1,549 2,864 3,046 expenses Depreciation 117 113 235 223 Selling, administrative and general expenses 97 113 206 217 Research and development expenses 16 17 32 34 Interest 22 21 44 44 Other expenses (note 7) 45 8 77 18 ------ ------ ------ ------ 1,693 1,821 3,458 3,582 ------ ------ ------ ------ Income before income taxes and other items 142 184 218 394 Income taxes (note 2) 69 76 103 154 ------ ------ ------ ------ Income before other items 73 108 115 240 Equity income (loss) 1 (23) (1) (39) Minority interests (3) (1) 5 2 ------ ------ ------ ------ NET INCOME $ 71 $ 86 $ 109 $ 203 Dividends on preference shares 1 2 4 5 ------ ------ ------ ------ NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS $ 70 $ 84 $ 105 $ 198 ------ ------ ------ ------
2 3 ALCAN ALUMINIUM LIMITED INTERIM CONSOLIDATED STATEMENT OF INCOME (cont'd) (unaudited)
Periods ended June 30 (IN MILLIONS OF US$, EXCEPT PER SHARE AMOUNTS) Second quarter Six months 1999 1998 1999 1998 ------ ------ ------ ------ NET INCOME PER COMMON SHARE (NOTE 3) $0.32 $0.37 $0.48 $0.87 ------ ------ ------ ------ DIVIDENDS PER COMMON SHARE $0.15 $0.15 $0.30 $0.30 ------ ------ ------ ------ INTERIM CONSOLIDATED STATEMENT OF RETAINED EARNINGS (unaudited) Six months ended June 30 (in millions of US$) 1999 1998 ------ ------ RETAINED EARNINGS - BEGINNING OF PERIOD $4,078 $3,556 Net income 109 203 Amount related to common shares purchased for cancellation 171 - Dividends - Common 66 68 - Preference 4 5 ------ ------ RETAINED EARNINGS - END OF PERIOD $3,946 $3,992 ------ ------
3 4 ALCAN ALUMINIUM LIMITED INTERIM CONSOLIDATED BALANCE SHEET (unaudited for 1999)
(IN MILLIONS OF US$) JUNE 30 DECEMBER 31 1999 1998 ------- ----------- ASSETS CURRENT ASSETS Cash and time deposits $ 616 $ 615 Receivables 1,461 1,401 Inventories - Aluminum 700 826 - Raw materials 281 345 - Other supplies 213 242 ------- ------- 1,194 1,413 ------- ------- TOTAL CURRENT ASSETS 3,271 3,429 ------- ------- Deferred charges and other assets 481 517 Investments 42 58 Property, plant and equipment (note 5) Cost (excluding Construction Work in progress) 11,099 11,758 Construction work in progress 1,064 911 Accumulated depreciation 6,369 6,772 ------- ------- 5,794 5,897 ------- ------- TOTAL ASSETS $ 9,588 $ 9,901 ------- -------
4 5 ALCAN ALUMINIUM LIMITED INTERIM CONSOLIDATED BALANCE SHEET (cont'd) (unaudited for 1999)
(IN MILLIONS OF US$, JUNE 30 DECEMBER 31 EXCEPT PER COMMON SHARE AMOUNTS) 1999 1998 ------- ----------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Payables $1,130 $1,104 Short-term borrowings 85 86 Income and other taxes 57 28 Debt maturing within one year (note 6) 282 166 ------ ------ 1,554 1,384 ------ ------ Debt not maturing within one year 1,318 1,537 Deferred credits and other liabilities 589 604 Deferred income taxes 768 747 Minority interests 111 110 SHAREHOLDERS' EQUITY Redeemable non-retractable preference shares 160 160 Common shareholders' equity Common shares 1,213 1,251 Retained earnings 3,946 4,078 Deferred translation adjustments (71) 30 ------ ------ 5,088 5,359 ------ ------ Total shareholders' equity 5,248 5,519 ------ ------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $9,588 $9,901 ------ ------ COMMON SHAREHOLDERS' EQUITY PER COMMON SHARE $23.38 $23.71 ------ ------ RATIO OF TOTAL BORROWINGS TO EQUITY 24:76 24:76 ------ ------
5 6 ALCAN ALUMINIUM LIMITED INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
Six months ended June 30 (IN MILLIONS OF US$) 1999 1998 ----- ----- OPERATING ACTIVITIES Net income $ 109 $ 203 Adjustments to determine cash from operating activities: Depreciation 235 223 Deferred income taxes 41 33 Equity loss - net of dividends 2 44 Change in operating working capital 95 (183) Change in deferred charges, other assets, deferred credits and other liabilities - net 60 (42) Gain on sales of businesses - net (42) (1) Other - net 16 3 ----- ----- CASH FROM OPERATING ACTIVITIES 516 280 ----- ----- FINANCING ACTIVITIES New debt 3 8 Debt repayments (57) (14) ----- ----- (54) (6) Short-term borrowings - net 8 (38) Common shares purchased for cancellation (219) -- Common shares issued 10 5 Redemption of preference shares -- (43) Dividends - Alcan shareholders (including preference) (70) (73) - Minority interests (3) (1) ----- ----- CASH USED FOR FINANCING ACTIVITIES (328) (156) ----- -----
6 7 ALCAN ALUMINIUM LIMITED INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS (cont'd) (unaudited)
Six months ended June 30 (IN MILLIONS OF US$) 1999 1998 ------ ------ INVESTMENT ACTIVITIES Property, plant and equipment (478) (292) Investments -- (2) Net proceeds from disposal of businesses and other assets 302 2 ------ ------ CASH USED FOR INVESTMENT ACTIVITIES (176) (292) Effect of exchange rate changes on cash and time deposits (9) (1) ------ ------ INCREASE (DECREASE) IN CASH AND TIME DEPOSITS 3 (169) Cash of companies consolidated (deconsolidated) (2) 1 Cash and time deposits - beginning of period 615 608 ------ ------ Cash and time deposits - end of period $ 616 $ 440 ------ ------
7 8 ALCAN ALUMINIUM LIMITED INFORMATION BY OPERATING SEGMENT * (unaudited)
Periods ended June 30 (IN MILLIONS OF US$) SALES AND OPERATING REVENUES OPERATING INCOME -------------------------------------- ---------------- Second Quarter Second Quarter -------------- ---------------- Intersector Third parties ----------- ------------- 1999 1998 1999 1998 1999 1998 ----- ----- ------ ------ ----- ---- Primary metal group $ 317 $ 360 $ 381 $ 451 $ 31 $100 Global fabrication group -- -- 1,393 1,533 77 70 Intersegment and other items (317) (360) 2 2 61 45 ----- ----- ------ ------ ---- ---- $ -- $ -- $1,776 $1,986 $169 $215 ----- ----- ------ ------ ---- ---- Reconciliation to net income Equity income (loss) 1 (23) Corporate offices (8) (9) Interest (22) (21) Income taxes (69) (76) ---- ---- NET INCOME $ 71 $ 86
SALES AND OPERATING REVENUES OPERATING INCOME -------------------------------------- ---------------- Six months Six months ---------- ---------- Intersector Third parties ----------- ------------- 1999 1998 1999 1998 1999 1998 ----- ----- ------ ----- ----- ----- Primary metal group $ 630 $ 733 $ 790 $ 941 $ 65 $ 256 Global fabrication group -- -- 2,803 2,993 122 128 Intersegment and other items (630) (733) 5 5 90 74 ----- ----- ------ ------ ----- ----- $ -- $ -- $3,598 $3,939 $ 277 $ 458 ----- ----- ------ ------ ----- ----- Reconciliation to net income Equity income (loss) (1) (39) Corporate offices (20) (18) Interest (44) (44) Income taxes (103) (154) ----- ----- NET INCOME $ 109 $ 203 ----- -----
[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 JUNE 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 ------ ------ ------ ------ Six months $ 109 $ 105 $ 203 $ 211 ------ ------ ------ ------ Net income attributable to common shareholders $ 105 $ 101 $ 198 $ 206 ------ ------ ------ ------ Net income per common share (basic and diluted) $ 0.48 $ 0.46 $ 0.87 $ 0.91 ------ ------ ------ ------
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 ------ ------ ------ ------ Six months n/a $ 32 n/a $ 165 ------ ------ ------ ------ Retained earnings - June 30 $3,946 $3,993 $3,992 $4,033 ------ ------ ------ ------ Deferred translation adjustments - June 30 $ (71) $ (125) $ (3) $ (43) ------ ------ ------ ------
[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
Second quarter Six months ------------------ ------------------- 1999 1998 1999 1998 ----- ----- ----- ----- Current $ 25 $ 58 $ 62 $ 121 Deferred 44 18 41 33 ----- ----- ----- ----- $ 69 $ 76 $ 103 $ 154 ----- ----- ----- -----
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 the currency revaluation of deferred income taxes, partially offset by exchange and reduced rate or tax-exempt items. In 1998, the difference is attributable to investment and other allowances, 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 (second quarter 1999: 217.5 million; 1998: 227.5 million; six months 1999: 220.1 million; 1998: 227.5 million). As at June 30 1999, there were 217,622,706 common shares outstanding. 4. SUPPLEMENTARY INFORMATION STATEMENT OF CASH FLOWS
Second quarter Six months --------------- ---------------- 1999 1998 1999 1998 ---- ---- ---- ---- Interest paid $ 35 $ 21 $ 68 $ 49 Income taxes paid $ 81 $ 96 $ 83 $ 185 ---- ---- ---- -----
SUMMARIZED FINANCIAL INFORMATION The following is summarized consolidated financial information for Alcan Aluminum Corporation, a wholly-owned subsidiary in the United States.
Second quarter Six months --------------- ---------------- 1999 1998 1999 1998 ---- ---- ---- ---- RESULTS OF OPERATIONS Revenues $949 $996 $1,824 $1,908 Costs and expenses 872 912 1,680 1,759 ---- ---- ------ ------ Income before incomes taxes 77 84 144 149 Income taxes 20 33 45 59 ---- ---- ------ ------ Net income $ 57 $ 51 $ 99 $ 90 ---- ---- ------ ------
JUNE 30 December 31 1999 1998 ------- ----------- FINANCIAL POSITION Current assets $ 749 $ 883 Current liabilities 489 483 ------ ------ Working capital 260 400 Property, plant and equipment - net 686 714 Other liabilities - net 200 (67) ------ ------ 1,146 1,047 Debt not maturing within one year 2 2 ------ ------ Net assets $1,144 $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. The gain on the sale of $46 ($26 after tax) is included in Other income. 6. REDEMPTION OF DEBT On July 15, 1999, the Company redeemed $132 principal amount of its 9-5/8% $150 debentures due in 2019. The redemption was at a price of 104.64%. 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 quarter, 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 $31 ($20 after tax) which are included in Other expenses, most of which will be paid in 1999 and 2000. 8. SUBSEQUENT EVENT In July 1999, the Company completed the sale of a subsidiary in France. The gain from the sale will be included in the Company's third quarter results. 9. PRIOR PERIOD AMOUNTS Certain prior period amounts have been reclassified to conform with the second quarter 1999 presentation. In the opinion of management, all adjustments necessary for a fair presentation of interim period results have been included in the financial statements. These interim results are not necessarily indicative of results for the full year. 12 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS
SECOND SIX FIRST Highlights (US$ millions, QUARTER MONTHS QUARTER except per share amounts) ----------- ------------- ------- 1999 1998 1999 1998 1999 ---- ---- ---- ---- ---- Sales and operating revenues 1,776 1,986 3,598 3,939 1,822 Net income 71 86 109 203 38 Net income per common share 0.32 0.37 0.48 0.87 0.16
The Company reports second quarter consolidated net income of $71 million compared to $38 million in the previous quarter and $86 million in the second quarter of 1998. After preference share dividends, net income per common share for the quarter is 32 cents compared to 16 cents in the first quarter and 37 cents a year earlier. The results for the quarter include a net non-operating after-tax gain of $6 million or 3 cents per share. This comprises a gain on the sale of the Company's piston operations in Germany of $26 million (12 cents per share), offset in part by restructuring costs of $20 million (9 cents per share) relating to the Company's Full Business Potential program. The prior year quarter included restructuring charges in Japan of $16 million or 7 cents per share. Earnings showed a strong recovery from the disappointing first quarter with higher metal prices, improved business conditions in Brazil and record fabricated products shipments. Alcan continues to focus on growing earnings from its core businesses as evidenced this quarter by the agreement to acquire rolling assets in South Korea, the sale of a pistons business in Germany and the streamlining of corporate offices. Provided the recent recovery in aluminum prices is sustained, the prospect is for continuing earnings improvement with increased fabricated product prices as well as improvements generated by the Full Business Potential program.
SECOND SIX FIRST QUARTER MONTHS QUARTER ----------- ----------- ------- Volumes (thousands of tonnes) 1999 1998 1999 1998 1999 ---- ---- ---- ---- ---- Shipments Ingot products* 209 207 430 409 221 Fabricated products 488 469 949 905 461 Fabrication of customer-owned metal 81 72 147 140 66 ----- ----- ----- ----- ----- Total volume 778 748 1,526 1,454 748 ===== ===== ===== ===== ===== Ingot product realizations (US$ per tonne) 1,451 1,591 1,417 1,630 1,385 Fabricated product realizations (US$ per tonne) 2,520 2,930 2,608 2,969 2,702
[FN] * Includes primary and secondary ingot and scrap 13 14 Despite higher sales volumes, sales and operating revenues for the second quarter were lower than both the first quarter and the year earlier quarter reflecting lower average fabricated product selling prices. Total fabricated product volumes, which include products fabricated from customer-owned metal, reached a record level of 569 thousand tonnes (kt) in the second quarter, compared to 541 kt in the corresponding quarter of 1998, and 527 kt in the first quarter of 1999. Average ingot product realizations of $1,451/tonne rose from the first quarter level due to the improving price on the London Metal Exchange (LME) but remain $140/tonne below a year ago. Fabricated product realizations declined from the first quarter level reflecting the effect of divestments and lower exchange rates, principally in Europe. The decline compared to a year ago reflected these factors as well as the decline in underlying metal prices and the time lag in pricing of certain can sheet contracts. During the quarter the Company took various steps in the implementation of its Full Business Potential program. These included a restructuring of head offices, changes in power operations in Kemano, British Columbia and continuing integration of European fabricating operations along product streams. Although reported figures for the first six months indicate a modest improvement in profitability, the gains from these actions will be realized in the future. OPERATING SEGMENT REVIEW The Company reports selected information by major operating segment viewed on a stand-alone basis. Transactions between operating segments product sectors are conducted on an arm's length basis and reflect market-related prices. Thus, income from primary metal operations is mainly profit on metal produced by the Company, whether sold to third parties or used in the Company's fabricating operations. Income from fabricated product businesses represents only the fabricating profit on rolled products and downstream businesses.
SECOND SIX FIRST QUARTER MONTHS QUARTER --------------- --------------- ------- (US$ millions) 1999 1998 1999 1998 1999 ---- ---- ---- ---- ---- Operating income Primary metal group* 31 100 65 256 34 Global fabrication group* 77 70 122 128 45 Intersector and other items 61 45 90 74 29 ---- ---- ---- ---- ---- 169 215 277 458 108 Equity income (loss) 1 (23) (1) (39) (2) Corporate head office* (8) (9) (20) (18) (12) Interest (22) (21) (44) (44) (22) Income taxes (69) (76) (103) (154) (34) ---- ---- ---- ---- ------ Net income 71 86 109 203 38 ==== ==== ==== ==== ======
[FN] * Corporate office and certain other costs in prior periods have been allocated to the respective operating segments in line with the new organization. 14 15 Income for the primary metal group includes a pre-tax charge of $21 million relating to employee reductions and closure costs arising from the re-organization initiated during the quarter. The underlying improvement in operating earnings reflects higher metal prices. In the global fabrication group, operating profits were ahead of both the first quarter and a year ago. In North America, sales volume increased 7% over the first quarter and 4% over the year-ago quarter, but changes in product mix resulted in earnings ahead of the first quarter and in line with a year earlier. European shipments showed a further improvement in the second quarter but remain below the year-ago quarter. Earnings from European operations, though improved over the first quarter, fell short of the 1998 level, reflecting lower profit margins. In South America, there has been a solid recovery from the economic crisis in Brazil with shipments back to normal levels and a return to profitability. Asia continues to show improved earnings. "Intersector and other items" includes a pre-tax gain of $46 million on the sale of the Company's pistons business in Germany and $10 million of restructuring costs at the corporate head office. 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 $12 million relating to the currency revaluation of the deferred income tax liability that results from the stronger Canadian dollar. This compares to $9 million in the first quarter of 1999. There was no impact on the prior year quarter. GEOGRAPHIC REVIEW
FIRST SECOND QUARTER SIX MONTHS QUARTER --------------- --------------- ------- Net income (Loss) (US$ millions) 1999 1998 1999 1998 1999 ---- ---- ---- ---- ---- Canada (14) 34 (41) 81 (27) United States 40 41 74 72 34 South America 8 1 (1) 6 (9) Europe 23 5 31 29 8 Asia and Pacific 8 (17) 24 (23) 16 Other (including eliminations) 6 22 22 38 16 ---- ---- ---- ---- ---- Net income 71 86 109 203 38 ==== ==== ==== ==== ====
In Canada, net income includes a charge of $20 million after tax in respect of restructuring costs. Excluding this, the improvement over the first quarter reflects higher primary metal prices. 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 improved substantially as the business recovered from the effects of the financial crisis in Brazil. Following the devaluation Brazilian operations are benefiting from lower costs. European results for the quarter include a gain of $26 million after tax on the sale of the piston operations in Germany, partly offset by seasonally lower power sales in the U.K. Results in the Asia and Pacific region for the quarter reflect lower alumina prices. The prior year period included rationalization costs in Japan. 15 16 LIQUIDITY AND CAPITAL RESOURCES OPERATING ACTIVITIES Cash from operating activities during the first half of 1999 was $516 million compared to $280 million in the comparable period of 1998. The lower net income in the first six months of 1999 compared to the same period in 1998 was offset by an improvement in working capital which was reduced by $95 million during the period. In the first six months of 1998 working capital had risen by $183 million. FINANCING ACTIVITIES Cash used for financing activities in the first half of 1999 was $328 million compared to $156 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 half of this year debt was reduced by $57 million. The debt:equity ratio at June 30 was 24:76, compared to 25:75 at March 31, 1999 and 21:79 a year ago. At the end of the second quarter of 1999 the Company had cash and time deposits of $616 million compared to $440 million a year earlier. On July 15, 1999 the Company redeemed $132 million principal of its 9 5/8% $150 million debentures due 2019. The redemption was at a price of 104.64%. The loss on redemption will be recorded in the third quarter results. INVESTMENT ACTIVITIES Capital expenditures during the first half of 1999 were $478 million compared to $292 million a year earlier. Major projects during the six month period were the expansion of the rolling mill at Pindamonhangaba, Brazil and the construction of the Alma, Quebec aluminum smelter. Net proceeds from the disposal of businesses were $302 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 operations in Germany and, in July, completed the sale of its building systems business in France. FINANCIAL INSTRUMENTS - CURRENCY HEDGING FOR ALMA SMELTER Through a combination of option contracts and forward exchange contracts totaling $924 million at June 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. 16 17 Any gains or losses from these hedging activities, and related costs, will be included in the capital cost of the new smelter. 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. Remediation of all critical systems was approximately 99% complete at 30 June 1999. Remediation means an item has been repaired or replaced and has been unit tested or otherwise demonstrated to be compliant. Implementation of remediated critical systems was approximately 96% complete by 30 June 1999, the target date in accordance with the Alcan Project for implementation. Implementation involves putting back into normal operation a remediated system or component and ensuring that all related supporting infrastructure is in place. Alcan expects to complete implementation of its remaining remediated critical systems in a timely manner. Alcan has surveyed key third party suppliers to address Year 2000 readiness and to provide it with information for contingency planning. With respect to third parties, 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 businesses 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 enables Alcan to deal directly with those power supply risks. The remainder comes generally from major utilities linked to national grid systems. These major utilities have reported that they have appropriate year 2000 programs underway to limit the likelihood of year 2000 related disruptions. Contingency planning by each business unit, including corporate functions, was substantially complete by the end of June 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, increasing finished goods inventory levels, 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. The goal of contingency planning is to minimize the risk and impact of Year 2000 business interruptions including the impact of such disruptions from a financial, environmental, property damage and employee perspective. Such 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 will be tested and refined as additional information concerning Alcan's year 2000 exposure and opportunities become available throughout the balance of 1999 and will be implemented and tested where practical throughout 1999. 17 18 A risk management and loss prevention engineering company associated with Alcan's insurers conducted an operations level audit of the contingency plans at smelters, company-owned power generating stations and other major production facilities. These audits were helpful in verifying that contingency plans addressed property damage exposures related to possible loss of power and other utilities, and the property damage impact of the failure of automated control equipment. Alcan also 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. Each business unit has incorporated a quality assurance component into its year 2000 activities and has participated 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 audit department conducted 72 verification audits in 1998. There are approximately 80 verification audits planned for 1999, of which 49 have been performed as of 30 June 1999. 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 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 repair and replacement of systems at Alcan facilities are expensed as incurred and are now estimated at less than US$50 million. Costs from the beginning of the project to 30 June 1999 were US$37 million. Our cost projection does not include costs associated with contingency planning; however, we do not expect these costs will have a material adverse effect on Alcan's liquidity, results of operation or financial condition or represent a significant increase to the original US$50 million estimate. These projections also 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 commodity traded on the London Metal Exchange (LME) in US dollars. The great majority of Alcan's sales are priced 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 currently 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 Harbour Provisions of the Private Securities Litigation Reform Act of 1995" at Exhibit No. 99. PART II. OTHER INFORMATION ITEMS 1. THROUGH 5. The registrant has nothing to report under these items. 18 19 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 a report on Form 8-K dated 22 April 1999 during the quarter ending 30 June 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: August 6, 1999 By: /s/ Glenn R. Lucas -------------------------- (A Duly Authorized Officer) 19 20 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.)
20
EX-27 2 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Form 10-Q of Alcan Aluminum Limited for the quarter ended 30 June 1999 and is qualified in its entirety by reference to such financial statements. 1,000,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 616 0 1,461 0 1,194 3,271 12,163 6,369 9,588 1,554 1,318 0 160 1,213 3,875 9,588 3,598 3,676 2,864 2,864 235 0 44 218 103 109 0 0 0 109 0.48 0.48
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 June 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. 22
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