-----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, WZyl2LEIivj3PeVKTekI2G/LZ7Y/LFWius1/9+zy2JjXNhxZkjlQpbi9aU4OF3bs upWA6jboQX8wndlq+aoOfg== 0000950123-98-007488.txt : 19980814 0000950123-98-007488.hdr.sgml : 19980814 ACCESSION NUMBER: 0000950123-98-007488 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 SROS: NONE 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: 98684960 BUSINESS ADDRESS: STREET 1: 1188 SHERBROOKE ST WEST CITY: MONTREAL QUEBEC CANA STATE: A8 BUSINESS PHONE: 5148488000 10-Q 1 FORM 10-Q / ALCAN ALUMINUM 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, 1998 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 June 30, 1998, the registrant had 227,538,313 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 ---------------- ---------------- 1998 1997 1998 1997 ------ ------ ------ ------ REVENUES Sales and operating revenues..... $1,986 $2,011 $3,939 $3,881 Other income..................... 19 19 37 47 ------ ------ ------ ------ 2,005 2,030 3,976 3,928 ------ ------ ------ ------ COSTS AND EXPENSES Cost of sales and operating expenses........................ 1,549 1,552 3,046 3,002 Depreciation..................... 113 110 223 217 Selling, administrative and general expenses............... 113 115 217 218 Research and development expenses....................... 17 18 34 34 Interest......................... 21 26 44 51 Other expenses................... 8 19 18 29 ------ ------ ------ ------ 1,821 1,840 3,582 3,551 ------ ------ ------ ------ Income before income taxes and other items................. 184 190 394 377 Income taxes (note 3)............ 76 72 154 117 ------ ------ ------ ------ Income before other items........ 108 118 240 260 Equity income (loss)............. (23) (1) (39) 2 Minority interests............... 1 (1) 2 (3) ------ ------ ------ ------ NET INCOME....................... $ 86 $ 116 $ 203 $ 259 Dividends on preference shares... 2 2 5 5 ------ ------ ------ ------ NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS.......... $ 84 $ 114 $ 198 $ 254 ------ ------ ------ ------
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 -------------- -------------- 1998 1997 1998 1997 ---- ---- ---- ---- NET INCOME PER COMMON SHARE (NOTE 4)................. $0.37 $0.50 $0.87 $1.12 ----- ----- ----- ----- DIVIDENDS PER COMMON SHARE...... $0.15 $0.15 $0.30 $0.30 ----- ----- ----- -----
INTERIM CONSOLIDATED STATEMENT OF INCOME (unaudited)
Six months ended June 30 (in millions of US$) 1998 1997 ---- ---- RETAINED EARNINGS - BEGINNING OF PERIOD As previously reported............................ $ 3,556 $ 3,217 Accounting change (note 1)........................ 306 - ------- ------- AS RESTATED....................................... 3,862 3,217 Net income........................................ 203 259 Dividends - Common................................ 68 68 - Preference............................ 5 5 ------- ------- RETAINED EARNINGS - END OF PERIOD................. $ 3,992 $ 3,403 ------- -------
3 4 ALCAN ALUMINIUM LIMITED INTERIM CONSOLIDATED BALANCE SHEET (unaudited for 1998)
(in millions of US$) June 30 December 31 1998 1997 ------- ----------- ASSETS CURRENT ASSETS Cash and time deposits................... $ 440 $ 608 Receivables.............................. 1,415 1,292 Inventories Aluminum............................... 784 800 Raw materials.......................... 315 307 Other supplies......................... 236 234 ------- ------- 1,335 1,341 ------- ------- Total current assets...................... 3,190 3,241 ------- ------- Deferred charges and other assets......... 447 424 Investments............................... 155 251 Property, plant and equipment Cost..................................... 11,948 11,715 Accumulated depreciation................. 6,439 6,257 ------- ------- 5,509 5,458 ------- ------- TOTAL ASSETS.............................. $ 9,301 $ 9,374 ------- -------
4 5 ALCAN ALUMINIUM LIMITED INTERIM CONSOLIDATED BALANCE SHEET (cont'd) (unaudited for 1998)
(in millions of US$, June 30 December 31 except per common share amounts) 1998 1997 ------- ----------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Payables..................................... $ 1,038 $ 1,052 Short-term borrowings........................ 198 238 Income.and other taxes....................... 49 98 Debt maturing within one year................ 40 36 ------- ------- 1,325 1,424 ------- ------- Debt not maturing within one year............. 1,222 1,241 Deferred credits and other liabilities........ 609 623 Deferred income taxes......................... 698 969 Minority interests............................ 42 43 SHAREHOLDERS' EQUITY Redeemable non-retractable preference shares.......................... 160 203 Common shareholders' equity Common shares.............................. 1,256 1,251 Retained earnings.......................... 3,992 3,556 Deferred translation adjustments........... (3) 64 ------- ------- 5,245 4,871 ------- ------- Total shareholders' equity.................... 5,405 5,074 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.... $ 9,301 $ 9,374 ------- ------- COMMON SHAREHOLDERS' EQUITY PER COMMON SHARE.. $ 23.05 $ 21.43 ------- ------- RATIO OF TOTAL BORROWINGS TO EQUITY........... 21:79 23:77 ------- -------
5 6 ALCAN ALUMINIUM LIMITED INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
Six months ended June 30 (in millions of US$) 1998 1997 ----- ----- OPERATING ACTIVITIES Net income...................................... $ 203 $ 259 Adjustments to determine cash from operating activities: Depreciation............................... 223 217 Deferred income taxes...................... 33 (6) Equity income - net of dividends........... 44 3 Change in operating working capital........ (183) (262) Change in deferred charges, other assets, deferred credits and other liabilities - net.............. (42) (4) Gain on sales of businesses - net ......... (1) (13) Other - net................................ 3 22 ----- ----- CASH FROM OPERATING ACTIVITIES.................. 280 216 ----- ----- FINANCING ACTIVITIES New debt....................................... 8 35 Debt repayments................................ (14) (34) ----- ----- (6) 1 Short-term borrowings - net................... (38) 77 Common shares issued........................... 5 9 Redemption of preference shares................ (43) - Dividends - Alcan shareholders (including preference)............. (73) (73) - Minority interests................. (1) (2) ----- ----- CASH FROM (USED FOR) FINANCING ACTIVITIES....... (156) 12 ----- -----
6 7 ALCAN ALUMINIUM LIMITED INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS (cont'd) (unaudited)
Six months ended June 30 (in millions of US$) 1998 1997 ---- ---- INVESTMENT ACTIVITIES Property, plant and equipment....................... (292) (230) Investments......................................... (2) - Net proceeds from disposal of businesses and other assets....................... 2 48 ---- ---- CASH USED FOR INVESTMENT ACTIVITIES.................. (292) (182) ---- ---- Effect of exchange rate changes on cash and time deposits........................... (1) - ---- ---- INCREASE (DECREASE) IN CASH AND TIME DEPOSITS........ (169) 46 Cash of companies consolidated (deconsolidated)...... 1 (11) Cash and time deposits - beginning of period............................... 608 546 ---- ---- Cash and time deposits - end of period..................................... $440 $581 ---- ----
7 8 ALCAN ALUMINIUM LIMITED INFORMATION BY PRODUCT SECTOR (unaudited) Periods ended June 30 (in millions of US$) SECOND QUARTER
SALES AND OPERATING REVENUES OPERATING INCOME ----------------------------- ---------------- Intersector Third parties ----------- ------------- 1998 1997 1998 1997 1998 1997 ---- ---- ---- ---- ---- ---- Raw materials and chemicals..................... $ 124 $ 131 $ 129 $ 126 $ 30 $ 31 Primary metal................. 358 378 322 383 85 136 Fabricated products........... - - 1,533 1,499 88 94 Intersector and other items.................. (482) (509) 2 3 37 (19) ----- ----- ------ ------ ----- ----- $ - $ - $1,986 $2,011 $ 240 $ 242 ----- ----- ------ ------ Reconciliation to net income Equity income (loss)........ $ (23) $ (1) Corporate offices........... (34) (27) Interest.................... (21) (26) Income taxes................ (76) (72) ----- ----- NET INCOME.................. $ 86 $ 116 ----- -----
SIX MONTHS
SALES AND OPERATING REVENUES OPERATING INCOME ---------------------------- ---------------- Intersector Third parties ------------- ------------- 1998 1997 1998 1997 1998 1997 ---- ---- ---- ---- ---- ---- Raw materials and chemicals................... $ 256 $ 244 $ 266 $ 246 $ 69 $ 39 Primary metal................ 731 769 675 756 215 302 Fabricated products.......... - - 2,993 2,871 164 159 Intersector and other items................. (987) (1,013) 5 8 56 (14) ------ ------ ------ ------ ----- ----- $ - $ - $3,939 $3,881 $ 504 $ 486 ------ ------ ------ ------ Reconciliation to net income Equity income (loss)........ $ (39) $ 2 Corporate offices........... (64) (61) Interest.................... (44) (51) Income taxes................ (154) (117) ----- ------ NET INCOME.................. $ 203 $ 259 ----- ------
8 9 ALCAN ALUMINIUM LIMITED NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1998 (UNAUDITED) (in millions of US$, except per share amounts) 1. ACCOUNTING CHANGE In 1998, the Company adopted new recommendations of the Canadian Institute of Chartered Accountants dealing with accounting for income taxes. The principal change under the new recommendations is the requirement to revalue deferred income tax liabilities for all changes in tax rates and exchange rates. The Company has adopted the new recommendations retroactively without restating prior years. The cumulative effect of adopting the new recommendations at January 1, 1998 is to decrease Deferred income taxes by $285 million, to increase Retained earnings by $306 million and to decrease Deferred translation adjustments by $21 million. 2. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) Differences in 1998 relate principally to accounting for foreign currency translation. Differences prior to 1998 relate principally to accounting for deferred income taxes. RECONCILIATION OF CANADIAN AND U.S. GAAP
1998 1997 ----------------- --------------- AS U.S. As U.S. REPORTED GAAP Reported GAAP -------- ---- -------- ---- Net income First quarter................ $ 117 $ 117 $ 143 $ 142 Second quarter............... 86 94 116 141 ------ ------ ------ ------ Six months................... $ 203 $ 211 $ 259 $ 283 ------ ------ ------ ------ Net income attributable to common shareholders..... $ 198 $ 206 $ 254 $ 278 ------ ------ ------ ------ Net income per common share Basic and diluted.......... $ 0.87 $ 0.91 $ 1.12 $ 1.23 ------ ------ ------ ------
9 10 RECONCILIATION OF CANADIAN AND U.S. GAAP (CONT'D)
1998 1997 --------------------------------------------- AS U.S. As U.S. REPORTED GAAP Reported GAAP -------- ---- -------- ---- Comprehensive income * First quarter..................... n/a $ 111 n/a $ 61 Second quarter.................... n/a $ 54 n/a $ 178 ------- ------- ------- ------- Six months........................ n/a $ 165 n/a $ 239 ------- ------- ------- ------- Deferred income taxes - June 30.................... $ 698 $ 698 $ 977 $ 722 ------- ------- ------- ------- Retained earnings - June 30.................... $ 3,992 $ 4,033 $ 3,403 $ 3,730 ------- ------- ------- ------- Deferred translation adjustments - June 30............. $ (3) $ (43) $ 176 $ 98 ------- ------- ------- ------- * Beginning in 1998, 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. The concept of comprehensive income does not exist under Canadian GAAP.
3. INCOME TAXES
Second quarter Six months ---------------- ----------------- 1998 1997 1998 1997 ---- ---- ---- ---- Current................................ $ 58 $ 76 $ 121 $ 123 Deferred............................... 18 (4) 33 (6) ---- ---- ----- ----- $ 76 $ 72 $ 154 $ 117 ---- ---- ----- -----
The composite of the applicable statutory corporate income tax rates in Canada is 40.4% (40.3% for 1997). The difference between income taxes calculated at the composite rate and the amounts shown as reported is attributable mainly to exchange and the large corporations tax, partially offset by investment and other allowances. In 1997, the difference is mainly attributable to prior years' tax adjustments and investment and other allowances. 10 11 4. NET INCOME PER COMMON SHARE Net income per common share is based on the average number of shares outstanding during the period (second quarter 1998: 227.5 million; 1997: 227.0 million; six months 1998: 227.5 million; 1997: 226.9 million). As at June 30, 1998, there were 227,538,313 common shares outstanding. 5. SUPPLEMENTARY INFORMATION STATEMENT OF CASH FLOWS
Second quarter Six months ----------------- ----------------- 1998 1997 1998 1997 ------ ------ ------ ------ Interest paid.................. $ 21 $ 22 $ 49 $ 50 Income taxes paid.............. $ 96 $ 70 $ 185 $ 130 ------ ------ ------ ------
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 ----------------- ----------------- 1998 1997 1998 1997 ------ ------ ------ ------ RESULTS OF OPERATIONS Revenues...................... $ 996 $ 954 $1,908 $1,819 Costs and expenses............ 912 897 1,759 1,737 ------ ------ ------ ------ Income before incomes taxes... 84 57 149 82 Income taxes.................. 33 22 59 32 ------ ------ ------ ------ Net income.................... $ 51 $ 35 $ 90 $ 50 ------ ------ ------ ------
JUNE 30 December 31 1998 1997 ----------- ----------- FINANCIAL POSITION Current assets............................... $ 852 $ 801 Current liabilities.......................... 456 376 ------ ------ Working capital.............................. 396 425 Property, plant and equipment - net.......... 716 736 Other liabilities - net...................... (49) (199) ------ ------ 1,063 962 Debt not maturing within one year............ 102 102 ------ ------ Net assets................................... $ 961 $ 860 ------ ------
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. 6. SUBSEQUENT EVENT On July 3, 1998, the Company acquired an additional 17% of Indian Aluminium Company, Limited (Indal), and will acquire a further 3% on completion of certain Indian tax formalities, for a total of $70 million in cash. This will bring Alcan's stake in Indal to 54.6%. 7. PRIOR YEAR AMOUNTS Certain prior year amounts have been reclassified to conform with the 1998 presentation. In the opinion of management, all adjustments necessary for a fair presentation of interim period results have been included in the financial statements. These interim results are not necessarily indicative of results for the full year. 12 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS
SECOND SIX FIRST QUARTER MONTHS QUARTER ------------ ----------- ------- Highlights (US$ millions, 1998 1997 1998 1997 1998 except per share amounts) ---- ---- ---- ---- ---- Sales and operating revenues.... 1,986 2,011 3,939 3,881 1,953 Net income...................... 86 116 203 259 117 Net income per common share..... 0.37 0.50 0.87 1.12 0.50
The Company reports second quarter consolidated net income of US$113 million (49 cents per share) before losses at its Japanese affiliate, compared to $118 million (51 cents per share) in the corresponding quarter of 1997. After a charge of $27 million (12 cents per share) for losses at 45.6%-owned Nippon Light Metal Company, Ltd. (NLM) net income for the quarter ended June 30, 1998 was $86 million versus $116 million in the second quarter of 1997. After preference share dividends, net income per common share for the quarter is 37 cents compared to 50 cents a year earlier. Alcan's share of the equity-accounted losses at NLM referred to above includes restructuring costs of $16 million (7 cents per share). NLM's losses have no impact on Alcan's cash flows. The maximum amount of losses which Alcan may be required to record in the future is limited to the net book value of its investment in NLM. At current exchange rates, the net book value of Alcan's investment in NLM now stands at $88 million. Fabricated product operations in Europe and North America performed well, despite the lower commodity price environment, with total fabricated product shipments up 7% from the previous quarter. Alcan's Japanese affiliate, however, posted increased operating losses and restructuring costs in the light of very weak economic conditions. Although market conditions remain satisfactory in Europe and North America, the price for aluminum is unlikely to improve until there are signs of economic recovery in Japan. Good progress is being made in Alcan's Full Business Potential program, with a further $40 million achieved in the first half of this year. The Company is on track to achieve the targeted $300 million earnings improvement by the end of 1999. During the quarter, a 5 1/2-year wage agreement was negotiated with a majority of Alcan's unionized employees in Quebec, under the 18-year 'no interruption' agreement announced earlier this year. 13 14
SECOND SIX FIRST QUARTER MONTHS QUARTER ------------ ------------ ------- Volumes (thousands of tonnes) 1998 1997 1998 1997 1998 ----- ----- ----- ----- ----- Shipments Ingot products*.............................. 207 216 409 428 202 Fabricated products.......................... 469 448 905 859 436 Fabrication of customer-owned metal............. 72 73 140 140 68 ----- ----- ----- ----- ----- Total volume.................................... 748 737 1,454 1,427 706 ===== ===== ===== ===== ===== Ingot product realizations (US$ per tonne)...... 1,591 1,770 1,630 1,733 1,670 Fabricated product realizations (US$ per tonne). 2,930 2,990 2,969 2,980 3,010 *Includes primary and secondary ingot and scrap
Sales and operating revenues for the second quarter of 1998 showed a slight increase over the first quarter, despite lower metal prices, reflecting higher fabricated product volumes. Total fabricated product volumes, which include products fabricated from customer-owned metal, reached a record level of 541 thousand tonnes (kt) in the second quarter, some 4% higher than a year earlier and 7% ahead of the first quarter of 1998. Average ingot product realizations declined $79/tonne from the first quarter and $179/tonne from the second quarter of 1997 compared to declines of $93 and $218 respectively in the LME 3-month price. Fabricated product realizations also declined by less than the drop in ingot prices compared to a year ago reflecting higher local currency prices in Europe. PRODUCT SECTOR REVIEW The Company reports selected information by major product sector, viewed on a stand-alone basis. Transactions between product sectors are conducted on an arm's length basis and reflect market-related prices. Thus, profit on all alumina produced by the Company, whether sold to third parties or used in the Company's smelters, is included in the raw materials and chemicals sector. Similarly, income from primary metal operations is mainly profit on metal produced by the Company, whether sold to third parties or used in the Company's fabricating operations. Income from fabricated product businesses represents only the fabricating profit on rolled products and downstream businesses. 14 15
SECOND SIX FIRST QUARTER MONTHS QUARTER ------------ ------------ ------- (US$ millions) 1998 1997 1998 1997 1998 Operating income Raw materials and chemicals..... 30 31 69 39 39 Primary metal................... 85 136 215 302 130 Fabricated products............. 88 94 164 159 76 Intersector and other items..... 37 (19) 56 (14) 19 ---- ---- ---- ---- ---- 240 242 504 486 264 Equity income (loss)............... (23) (1) (39) 2 (16) Corporate offices.................. (34) (27) (64) (61) (30) Interest........................... (21) (26) (44) (51) (23) Income taxes....................... (76) (72) (154) (117) (78) ---- ---- ---- ---- ---- Net income......................... 86 116 203 259 117 ==== ==== ==== ==== ====
Operating profits from raw material and chemical operations were little changed from the year-ago quarter with lower prices offset by cost savings. Earnings declined from the first quarter as the effect of lower metal prices flowed through to alumina. The decline in earnings from primary metal operations compared to the first quarter of 1998 and the year-ago quarter results primarily from lower market prices for ingot. The continued improvement in results from fabricated product businesses reflects further increases in volume in Europe and North America, partially offset by weaker results from Asia and South America. "Intersector and other items" primarily reflects the realization or deferral of profits on intersector sales of metal. Profits were deferred in 1997 due to generally rising ingot prices. In the first half of 1998 previously deferred profits on intersector sales were realized as ingot prices decreased. Also included in this category is interest income. Alcan recorded a loss from equity-accounted companies of $23 million for the second quarter primarily arising at NLM in Japan. Business conditions in Japan remain difficult and NLM's operating results deteriorated further. The continuing review of operations resulted in further provisions for manpower reductions, with Alcan's share of restructuring costs amounting to $16 million in the quarter, $27 million year-to-date. The effective tax rate rose in the second quarter of 1998 due principally to higher earnings in countries with higher tax rates and foreign exchange rate fluctuations. 15 16 GEOGRAPHIC REVIEW
SECOND SIX FIRST QUARTER MONTHS QUARTER ------------ ------------ ------- Net income (Loss) (US$ millions) 1998 1997 1998 1997 1998 ---- ---- ---- ---- ---- Canada................................ 34 46 81 131 47 United States......................... 41 40 72 66 31 South America......................... 1 5 6 19 5 Europe................................ 5 15 29 27 24 Asia and Pacific...................... (17) 7 (23) 20 (6) Other (including eliminations)....... 22 3 38 (4) 16 ---- ---- ---- ---- ---- Net income 86 116 203 259 117 ==== ==== ==== ==== ====
In Canada, net income declined from the first quarter and the prior year due to the effect of lower metal prices on primary metal operations. In the United States, net income from operations continued to improve reflecting strong fabricated product volumes, offset in part by lower profits on primary metal produced in that country. Operating results in South America were affected by lower primary metal prices and seasonally weaker shipments of rolled products in the second quarter. European results were lower reflecting lower prices for alumina and metal. Fabricated products, however, improved over the year earlier quarter. Results in the Asia and Pacific region for the quarter reflect poor results from Japan as well as lower alumina prices. The profit from "Other" in the quarter arises principally from the recognition of previously deferred profits on inter-regional sales of ingot. In 1997 this result was adverse as profits were deferred in a generally rising metal price environment. LIQUIDITY AND CAPITAL RESOURCES OPERATING ACTIVITIES Cash generated from operating activities during the first half of 1998 was $280 million, compared to $216 million in the comparable period of 1997. This is primarily due to a smaller increase in operating working capital reflecting improved working capital turnover. FINANCING ACTIVITIES Cash used for financing activities in the first half of 1998 was $156 million compared to an inflow in the comparable period of 1997 of $12 million. During the half year, the Company redeemed $43 million Series 'D' preference shares and repaid $44 million of debt. The debt:equity ratio at June 30, at 21:79 is unchanged 16 17 from the level at March 31, 1998 and compares to 23:77 a year ago. Total borrowings at June 30,1998 were $1,460 million compared to $1,532 million a year earlier. At the end of the second quarter of 1998, the Company had cash and time deposits of $440 million, reduced from $608 million at the beginning of the year. INVESTMENT ACTIVITIES Capital expenditures during the first half of 1998 were $294 million, compared to $230 million a year earlier. The investment of $1.6 billion in a new 375 kt/y aluminum smelter at Alma, Quebec has commenced, with expenditure of approximately $200 million anticipated in the current year and most of the remaining expenditure falling into 1999 and 2000. The year- ago period also included $48 million of proceeds from disposal of businesses and other assets. On July 3, 1998 the Company acquired an additional 17% of Indian Aluminium Company, Limited (Indal), and is in the process of acquiring a further 3% which requires completion of certain Indian tax formalities. The total cost of this additional 20% is $70 million in cash and it will bring Alcan's stake in Indal to 54.6%. FINANCIAL INSTRUMENTS - CURRENCY HEDGING FOR ALMA SMELTER Through a combination of option contracts and forward exchange contracts totalling $932 million at June 30, 1998, and maturing over various periods in 1998 and 1999, 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. YEAR 2000 COMPLIANCE Alcan continues to implement the various elements of its Year 2000 project. Remediation, which involves the repair or replacement of systems internal to Alcan that are not Year 2000 compliant, is under way and the Company believes it is making good progress with its remediation efforts. The Company continues to assess its vulnerability to third parties. If remediation by Alcan, or those with which Alcan does business, is not made in a timely way, then business interruptions or delays might occur that could have a material adverse effect on Alcan's business and financial condition. Costs associated with Year 2000 systems remediation at Alcan facilities, based on information currently available, are estimated to be US$50 million. Such costs are being expensed as incurred over the 1998 and 1999 periods. 17 18 PART II. -- OTHER INFORMATION ITEMS 1. THROUGH 5. The registrant has nothing to report under these items. 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 None were filed in the quarter ended June 30, 1998. 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 13, 1998 By: /s/ Geoffrey P. Batt -------------------------- Geoffrey P. Batt Treasurer (A Duly Authorized Officer) 18 19 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. EX-99 2 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, 1998, 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. EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM 10-Q OF ALCAN ALUMINIUM LIMITED FOR THE QUARTER ENDED 30 JUNE 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 440 0 1,415 0 1,335 3,190 11,948 6,439 9,301 1,325 1,222 0 160 1,256 3,989 9,301 3,939 3,976 3,046 3,046 223 0 44 394 154 203 0 0 0 203 0.87 0.87
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