-----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, VVYFDRFJlQBgML4Ow7FwlxrwWrGOze4NUj/n0PUu52ZUUPCgurmtjIBagAkkgnTY 1P8A2JXMbliUef3LKePh/Q== 0000950123-00-011714.txt : 20001222 0000950123-00-011714.hdr.sgml : 20001222 ACCESSION NUMBER: 0000950123-00-011714 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20001012 ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20001221 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: 8-K/A SEC ACT: SEC FILE NUMBER: 001-03677 FILM NUMBER: 793368 BUSINESS ADDRESS: STREET 1: 1188 SHERBROOKE ST WEST CITY: MONTREAL QUEBEC CANA STATE: A8 BUSINESS PHONE: 5148488000 8-K/A 1 m08474e8-ka.txt ALCAN ALUMINUM LIMITED 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): October 12, 2000 Alcan Aluminium Limited ----------------------------------------- (Exact name of Registrant as specified in its charter) Canada ------------------------------ (State or other jurisdiction of incorporation) 1-3677 Inapplicable - ----------------------------- ----------------------------- Commission File Number (I.R.S. Employer Identification No.)
1188 Sherbrooke Street West, Montreal, Quebec, Canada H3A 3G2 (Address of principal executive offices, including postal code) (514) 848-8000 --------------------------------------- (Registrant's telephone number, including area code) The Registrant hereby amends its Current Report on Form 8-K filed on October 27, 2000 (i) to add a reference to the number and caption of Item 2 in addition to the reference to the number and caption of Item 5 included in the initial filing; and (ii) to include Financial Statements of Business Acquired and Pro Forma Financial Information in accordance with Items 7 (a) and 7 (b) within 60 days after the due date of initial filing. 2 ITEM 2 and 5. Acquisition or Disposition of Assets ------------------------------------ (As previously reported under Item 5 of the Registrant's Current Report on Form 8-K filed on October 27, 2000). ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits ------------------------------------------------------------------ (a) Financial statements of business acquired ("algroup") The audited consolidated balance sheets of Alusuisse Group Ltd. (formerly Alusuisse Lonza Group AG) ("algroup") and subsidiaries as of December 31, 1999, 1998 and 1997, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1999. The unaudited interim financial statements of algroup for the financial period ended June 30, 2000. (b) Pro forma financial information Unaudited pro forma combined balance sheet of Alcan Aluminium Limited ("Alcan") at June 30, 2000. Unaudited pro forma combined statement of income from continuing operations of Alcan for the six months ended June 30, 2000. Unaudited pro forma combined statement of income from continuing operations of Alcan for the year ended December 31, 1999. Notes to unaudited pro forma combined financial statements. (c) Exhibits 23.1 Consent of independent auditors of Alusuisse Group Ltd. (filed herewith) 23.2 Consent of independent auditors of Alusuisse-Lonza America Inc. (filed herewith) 23.3 Consent of independent auditors of ALA (Nevada) Inc. (filed herewith) 99.1 The audited consolidated balance sheets of algroup and subsidiaries as of December 31, 1999, 1998 and 1997, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1999. (filed herewith) 99.2 The unaudited interim financial statements of algroup for the financial period ended June 30, 2000. (filed herewith) 99.3 Unaudited pro forma combined balance sheet of Alcan at June 30, 2000. Unaudited pro forma combined statement of income from continuing operations of Alcan for the six months ended June 30, 2000. Unaudited pro forma combined statement of income from continuing operations of Alcan for the year ended December 31, 1999. Notes to unaudited pro forma combined financial statements. (filed herewith) 2 3 99.4 Cautionary Statement for purposes of the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995. (filed herewith) SIGNATURES 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 hereunto duly authorized. ALCAN ALUMINIUM LIMITED By /s/ Richard Genest ------------------ Richard Genest Controller Date: December 21, 2000 3 4 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- (23.1) Consent of independent auditors of Alusuisse Group Ltd. (filed herewith) (23.2) Consent of independent auditors of Alusuisse-Lonza America Inc. (filed herewith) (23.3) Consent of independent auditors of ALA (Nevada) Inc. (filed herewith) (99.1) The audited consolidated balance sheets of algroup and subsidiaries as of December 31, 1999, 1998 and 1997, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1999. (filed herewith) (99.2) The unaudited interim financial statements of algroup for the financial period ended June 30, 2000. (filed herewith) (99.3) Unaudited pro forma combined balance sheet of Alcan at June 30, 2000. Unaudited pro forma combined statement of income from continuing operations of Alcan for the six months ended June 30, 2000. Unaudited pro forma combined statement of income from continuing operations of Alcan for the year ended December 31, 1999. Notes to unaudited pro forma combined financial statements. (filed herewith) (99.4) Cautionary Statement for purposes of the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995. (filed herewith)
4 EX-23.1 2 m08474ex23-1.txt CONSENT OF ALUSUISSE GROUP LTD 1 EXHIBIT NO. 23.1: CONSENT OF KPMG FIDES PEAT, INDEPENDENT AUDITORS TO THE BOARD OF DIRECTORS OF ALUSUISSE GROUP LTD. We consent to the incorporation by reference in registration statements No. 333-89711, 33-6070, 33-34716 and 33-61790 on Form S-8 and registration statements No. 333-76535, 2-78568, 2-78713 and 33-82754 on Form S-3 of Alcan Aluminium Limited of our report dated June 30, 2000, with respect to the consolidated balance sheets of Alusuisse Group Ltd. (formerly "Alusuisse Lonza Group AG") and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1999, which report appears in the Current Report on Form 8-K/A of Alcan Aluminium Limited dated December 21, 2000. Zurich, Switzerland December 21, 2000 /s/ KPMG Fides Peat ------------------- KPMG Fides Peat 5 EX-23.2 3 m08474ex23-2.txt CONSENT OF ALUSUISSE-LONZA AMERICA INC 1 EXHIBIT NO. 23.2: CONSENT OF PRICEWATERHOUSECOOPERS LLP, INDEPENDENT AUDITORS CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 2-78568, 2-78713, 33-82754 and 333-76535) and the Registration Statements on Form S-8 (No. 33-6070, 33-34716, 33-61790 and 333-89711) of Alcan Aluminium Limited of our report dated September 22, 1999 relating to the consolidated financial statements of Alusuisse-Lonza America Inc. (not appearing separately herein), which report appears in the Current Report on Form 8-K/A of Alcan Aluminium Limited dated December 21, 2000. Florham Park, New Jersey December 21, 2000 /s/ PricewaterhouseCoopers LLP ------------------------------ PricewaterhouseCoopers LLP 6 EX-23.3 4 m08474ex23-3.txt CONSENT OF ALA (NEVADA) INC. 1 EXHIBIT NO. 23.3: Consent of independent auditors of ALA (Nevada) Inc. Consent of independent auditors of ALA (Nevada) Inc. We consent to the incorporation by reference in registration statements No. 333-89711, 33-6070, 33-34716 and 33-61790 on Form S-8 and registration statements No. 333-76535, 2-78568, 2-78713 and 33-82754 on Form S-3 of Alcan Aluminium Limited of our report dated August 20, 1999, with respect to the balance sheets of ALA (Nevada) Inc. as of December 31, 1998 and 1997, and the related statements of income, shareholders' equity, and cash flows for the year ended December 31, 1998 and for the period from April 10, 1997 (inception) to December 31, 1997, (not appearing separately therein), which report appears in the Current Report on Form 8-K/A of Alcan Aluminium Limited dated December 21, 2000. Zurich, Switzerland December 21, 2000 /s/ KPMG Fides Peat ------------------------ KPMG Fides Peat 7 2 CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER
CONSOLIDATED FINANCIAL STATEMENTS NOTE* 1997 1998 1999 - --------------------------------- ----- ---- ---- ---- (In million of CHF) ASSETS FIXED ASSETS Property, plant and equipment 4 6,926 7,156 8,015 Accumulated depreciation 4 (4,518) (4,676) (5,121) Intangible assets and goodwill 4 255 246 282 Other non current assets and deferred items 4, 23 122 87 118 Investments in affiliates 4, 6 21 19 34 Long-term loans and advances 4, 14 51 11 7 ------ ------ ------ TOTAL FIXED ASSETS 4 2,857 2,843 3,335 ====== ====== ====== CURRENT ASSETS Inventories 7 1,092 1,120 1,226 Trade receivables 8 940 926 1 087 Other receivables, prepaid expenses and accrued income 9 368 325 339 Short-term advances and other financial assets 14 33 17 74 Cash and cash equivalents 10, 14 328 360 611 ------ ------ ------ TOTAL CURRENT ASSETS 2,761 2,748 3,337 ====== ====== ====== Net assets of discontinuing operations 28 1,880 1,809 0 ------ ------ ------ TOTAL ASSETS 7,498 7,400 6,672 ====== ====== ====== LIABILITIES AND SHAREHOLDERS' EQUITY Share capital 780 629 642 Consolidated reserves 1,985 2,472 716 TOTAL SHAREHOLDERS' EQUITY 2,765 3,101 1,358 MINORITY INTERESTS 32 41 40 LIABILITIES Long-term provisions 13, 23 633 608 641 Long-term debt: Bonds 14, 17 828 867 766 Due to banks and other financial institutions 14 696 333 322 ------ ------ ------ TOTAL LONG-TERM LIABILITIES 2,157 1,808 1,729 ====== ====== ====== Current liabilities: Trade payables 16 752 702 751 Other liabilities and deferred items 15 832 765 1 089 Short-term debt: Due to banks and other financial institutions 14 892 980 1 705 Long-term debts due within one year 14 68 3 0 ------ ------ ------ TOTAL CURRENT LIABILITIES 2,544 2,450 3,545 ------ ------ ------ TOTAL LIABILITIES 4,701 4,258 5,274 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 7,498 7,400 6,672 ====== ====== ======
* See the accompanying notes to the consolidated financial statements. 11 EX-99.1 5 m08474ex99-1.txt AUDITED CONSOLIDATED BALANCE SHEETS OF ALGROUP 1 EXHIBIT NO. 99.1: ALGROUP'S FINANCIAL RESULTS FOR THE THREE FINANCIAL PERIODS ENDED DECEMBER 31, 1999 Independent Auditors' Report ---------------------------- The Board of Directors and Shareholders Alusuisse Group Ltd: We have audited the accompanying consolidated balance sheets of Alusuisse Group Ltd, (the "Group", formerly "Alusuisse Lonza Group AG"), and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1999. These consolidated financial statements are the responsibility of the Group's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the 1998 and 1997 financial statements of Alusuisse-Lonza America Inc., a wholly-owned subsidiary, which statements translated from United States dollars into Swiss Francs reflect total assets constituting 20 percent in 1998, and total revenues constituting 19 percent and 20 percent in 1998 and 1997, respectively, of the related consolidated totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Alusuisse-Lonza America Inc., is based solely on the report of the other auditors. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Alusuisse Group Ltd and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with International Accounting Standards. International Accounting Standards vary in certain significant respects from accounting principles generally accepted in the United States and Canada. Application of accounting principles generally accepted in the United States and Canada would have affected results of operations for each of the years in the three-year period ended December 31, 1999 and shareholder's equity to the extent summarized in Note 35 to the consolidated financial statements. KPMG Fides Peat Zurich, Switzerland June 30, 2000 8 2 Report of Independent Accountants --------------------------------- To the Shareholder and Board of Directors of Alusuisse-Lonza America Inc. We have audited the accompanying consolidated balance sheets of Alusuisse-Lonza America Inc. and its subsidiaries (the "Company"), a wholly-owned subsidiary of Alusuisse Lonza Group Ltd ("algroup"), at December 31, 1998 and 1997, and the related consolidated statements of operations, of stockholders' equity and of cash flows for the years then ended (not presented separately herein). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the 1998 and 1997 financial statements of ALA (Nevada) Inc., a wholly-owned subsidiary of the Company, which statements reflect total assets (principally intercompany notes and loans receivables) of $434,249,000 and $31,506,000 at December 31, 1998 and 1997, respectively, and total net income (principally intercompany interest and dividend income) of $27,828,000 and $19,945,000 for the year ended December 31, 1998 and for the period from April 10, 1997 (inception) to December 31, 1997. The aforementioned intercompany notes and loans receivable and intercompany interest and dividend income of this company substantially eliminate in the Company's consolidation. Those statements were audited by KPMG Fides Peat, whose report thereon has been furnished to us, and the opinion expressed herein, insofar as it relates to the amounts included for ALA (Nevada) Inc., is based solely on the report of the other auditor. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditor provide a reasonable basis for our opinion. In our report dated January 20, 1998, we expressed an opinion that the 1997 and 1996 financial statements did not fairly present financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States because of a departure from such principles; the Company excluded from deferred tax assets, net of valuation allowance, certain income tax benefits related to a portion of an available unused tax loss carryforward. As described in Note 19 to the financial statements, the Company has changed its method of accounting for these items and restated its 1997 financial statements to conform with accounting principles generally accepted in the United States. Accordingly, our present opinion on the 1997 financial statements, as presented herein, is different from that expressed in the previous report. In our opinion, based upon our audits and the report of the other auditor, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Alusuisse-Lonza America Inc., and its subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. Accounting principles generally accepted in the United States vary in certain significant respects from International Accounting Standards. The application of the latter would have affected the determination of consolidated stockholder's equity and consolidated financial position at December 31, 1998 and 1997 and the determination of consolidated net income (loss) for the years then ended to the extent summarized in Note 21 to the consolidated financial statements. PricewaterhouseCoopers LLP Florham Park, New Jersey September 22, 1999 9 3 Independent Auditors' Report ---------------------------- The Board of Directors and Stockholders ALA (Nevada) Inc. We have audited the balance sheet of ALA (Nevada) Inc. as of December 31, 1998 and 1997, and the related statements of income and cash flows for the year ended December 31, 1998 and for the period from April 10, 1997 (inception) to December 31, 1997 (not presented separately herein). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ALA (Nevada) Inc. as of December 31, 1998 and 1997, and the results of its operations and its cash flows for the year ended December 31, 1998 and for the period from April 10, 1997 (inception) to December 31, 1997, in conformity with International Accounting Standards, which in the case of the Company, conform with in all material respects with accounting principles generally accepted in the United States. KPMG Fides Peat Zurich, Switzerland August 20, 1999 10 4 CONSOLIDATED INCOME STATEMENTS YEAR ENDED 31 DECEMBER
NOTE* 1997 1998 1999 ----- ---- ---- ---- (In millions of CHF) NET SALES 7,238 7,497 7,615 Changes in inventory of work-in-progress and finished goods 48 14 (34) INCOME FROM PRODUCTION 7,286 7,511 7,581 Material costs (3,604) (3,790) (3,758) Energy costs (252) (282) (274) Personnel expenses (1,660) (1,712) (1,721) Other operating income and expenses, net 19 (840) (751) (784) Depreciation and amortization 4 (347) (371) (292) OPERATING INCOME 583 605 752 Amortization of goodwill 4 (14) (15) (16) EARNINGS FROM CONTINUING OPERATIONS BEFORE INTEREST, TAXES AND MINORITY INTEREST 569 590 736 Interest income and exchange gains 20 78 111 123 Interest expenses and exchange losses 21 (248) (270) (280) Other income, net 22 5 5 8 EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND 404 436 587 MINORITY INTEREST Income taxes 23 (82) (107) (140) Income attributable to minorities (3) (7) (7) INCOME FROM CONTINUING OPERATIONS 319 322 440 Income from discontinuing operations 28 144 208 238 NET INCOME 463 530 678 1997 1998 1999 ---- ---- ---- CHF CHF CHF Basic earnings per share from continuing operations 51.8 51.4 69.6 Diluted earnings per share from continuing operations 51.4 51.3 68.7 Basic earnings per share Group 75.3 84.7 107.3 Diluted earnings per share Group 73.2 82.8 104.5
* See the accompanying notes to the consolidated financial statements. 12 5 CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED 31 DECEMBER
NOTE* 1997 1998 1999 ----- ---- ---- ---- (In million of CHF) Income from continuing operations 319 322 440 Depreciation on property, plant and equipment 4 340 365 282 Amortization of intangibles 4 7 6 10 Amortization of goodwill 4 14 15 16 Increase in long-term provisions, net 27 3 43 Income from application of the equity method (5) (4) (7) Increase in net working capital (95) (93) (20) NET CASH PROVIDED BY CONTINUING OPERATIONS 607 614 764 Net cash provided by discontinuing operations 28 227 367 318 ---- ---- ------ TOTAL CASH PROVIDED BY OPERATING ACTIVITIES 834 981 1,082 ==== ==== ====== Purchase of property, plant and equipment 4 (531) (507) (468) Purchase of intangibles 4 (6) (16) (16) Goodwill from purchase of operations 4 0 (4) (11) (Purchase) sale of investments in affiliates, net 3 7 (3) Purchase of consolidated companies (less cash acquired) 3, 25 (18) (61) 0 Sale of consolidated companies (less cash disposed) 3, 25 2 211 2 Sale of property, plant and equipment 2 24 16 (Purchase) sale of other assets 7 5 (5) Increase (decrease) in other long-term liabilities 11 0 (12) Payments associated with Lonza demerger 0 0 (346) Decrease (increase) in loans and advances 40 60 (49) NET CASH USED IN INVESTING ACTIVITIES - CONTINUING (490) (281) (892) Net cash used in investing activities - discontinuing 28 (381) (342) (1,236) ---- ---- ------ TOTAL CASH USED IN INVESTING ACTIVITIES (871) (623) (2,128) ==== ==== ====== Increase (decrease) of capital 103 (113) (1) Increase of capital from demerger 0 0 76 Increase (decrease) in debts 79 (197) 457 Dividends paid (115) 0 (157) Contributions (to) from minority interest (1) 8 (1) NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES - CONTINUING 66 (302) 374 Net cash provided by (used in) financing activities - discontinuing (1) (2) 918 ---- ---- ------ TOTAL CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 65 (304) 1,292 ==== ==== ====== TRANSLATION ADJUSTMENTS (17) (22) 5 Net increase (decrease) in cash 11 32 251 Cash and cash equivalents at 1 January 10 317 328 360 CASH AND CASH EQUIVALENTS AT 31 DECEMBER 10 328 360 611 Interest paid 237 152 167 Taxes paid 73 36 84
* See the accompanying notes to the consolidated financial statements 13 6 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEAR ENDED 31 DECEMBER
OTHER TOTAL SHARE INCOME COMPREHENSIVE SHAREHOLDERS' CAPITAL PREMIUM RESERVES INCOME EQUITY ------- ------- -------- ------------- ------------- (In million of CHF) AT 31 12 96 765 589 1,475 (434) 2,395 ---- --- ------ ---- ------ Increase of capital 15 88 103 Dividend (115) (115) Translation differences (81) (81) Net income 463 463 AT 31 12 97 780 677 1,823 (515) 2,765 ---- --- ------ ---- ------ Increase of capital 5 38 43 Share capital repayment (156) (156) Net income 530 530 Translation differences (81) (81) AT 31 12 98 629 715 2,353 (596) 3,101 ---- --- ------ ---- ------ Adoption of IAS 19 revised (82) (82) Increase of capital 13 127 140 Dividend (157) (157) Translation differences 40 40 Net income 678 678 Demerger Lonza Group (2,362) (2,362) AT 31 12 99 642 842 512 (638) 1,358 ---- --- ------ ---- ------
* See the accompanying notes to the consolidated financial statements. 14 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS GENERAL INFORMATION The consolidated financial statements are reported in Swiss francs (CHF) and are based on the annual accounts of the individual subsidiaries at 31 December, which have been drawn up according to uniform Group principles. The consolidated accounts are prepared in conformity with International Accounting Standards ("IAS"), published by the International Accounting Standards Committee ("IASC"). At the algroup extraordinary shareholders' meeting on 18 October 1999 the shareholders approved the demerger of the chemical business (composed of two divisions of the Group, fine chemicals and specialties and intermediates and additives) and the energy business. The above mentioned activities are treated as discontinuing operations. The net assets of the chemical business were deducted from the Group's equity on 1 November 1999. On 1 November 1999, the shares of Lonza Group were listed on the SWX Swiss Exchange and accordingly the discontinuing operations were included in the Group's consolidated financial statements for the ten-month period ended 31 October 1999. In order to reflect the debt-free status effective as of 1 July 1999, as stated in the Separation and Demerger Agreement and related to the above mentioned activities, all the debt and accordingly the interest positions are shown under continuing operations. RESTATEMENT For comparative purposes, certain prior year amounts have been reclassified to conform with the current year presentation. PRINCIPLES OF CONSOLIDATION The consolidated financial statements represent the accounts for the year ended 31 December of Alusuisse Group Ltd. ("algroup" or "the Group") and its subsidiaries. Subsidiaries acquired during the year are included in the consolidated accounts from the date of acquisition, while any subsidiaries sold are excluded from the accounts from the date of sale. Acquisitions are accounted for by the use of the purchase method of accounting. The full consolidation method is used, whereby the assets, liabilities, income and expenses are incorporated in full. The proportion of the net assets and net income attributable to minority shareholders' is shown separately in the consolidated balance sheet and income statement. Payables, receivables, income and expenses between the Group's subsidiaries included in the consolidation are eliminated. Intercompany profits included in year-end inventories of goods produced within the Group are eliminated. Transactions between the Group's subsidiaries are concluded under market conditions. Jointly controlled entities are consolidated using the proportionate method of consolidation. The method of proportionate consolidation takes into account individual assets, liabilities, income and expenses line-by-line pro rata to the participation in the equity. Investments in affiliates are reflected in the balance sheet using the equity method of accounting. Under this method, the investment is initially recorded at cost, and is increased or decreased by the proportionate share of the affiliate's profits or losses after the date of acquisition, adjusted for any amortization of goodwill arising on acquisition and depreciation of 15 8 fair market value increments/decrements recognized at that time. Dividends paid during the year reduce the carrying value of the investments. Investments of less than 20 percent are not consolidated and are stated at cost, less any write-offs that are necessary. Discontinued operations are not included in the consolidated financial statements on a line-by-line basis but segregated and shown as a net line item (net assets, net income) in the Group's consolidated financial statements. The principal companies included in the consolidation are shown in note 34 to algroup's consolidated financial statements. DEFINITIONS A SUBSIDIARY is a Group company which Alusuisse Group Ltd. controls by holding (either directly or indirectly) more than 50 percent of the voting shares of the company. An AFFILIATE is a Group company in which Alusuisse Group Ltd. holds (either directly or indirectly) 20 to 50 percent of the voting shares of the company. LONG-TERM LIABILITIES AND PROVISIONS include all amounts becoming due and payable after more than one year. CURRENT LIABILITIES AND DEFERRED ITEMS include all amounts becoming due and payable within one year. This item also includes the portion of long-term debts becoming due within one year. Receivables and payables bearing interest are stated as loans and advances and debts respectively. CONSOLIDATION OF FOREIGN SUBSIDIARIES All assets and liabilities of a foreign subsidiary which is consolidated are translated using the exchange rates in effect at the balance sheet date (the current rate method). Income and expenses are translated at the average exchange rate for the year. Differences resulting from the application of these different methods of translation of the balance sheet and income statement, together with exchange gains or losses on the opening net asset values of the subsidiaries, are added to or deducted from consolidated reserves in the balance sheet. REVENUE RECOGNITION Revenue from product sales is recognized when the product is shipped. Revenue on long-term construction contracts is accounted for under the percentage of completion method, whereby income is recognized based on the estimated stage of completion of individual contracts. FOREIGN CURRENCY TRANSACTIONS Transactions in foreign currencies are recorded using exchange rates in effect at the time of the transaction. Gains or losses arising on settlement of these transactions are included in the current year's income. Foreign currency denominated monetary assets and liabilities at 31 December are translated using the exchange rate in effect at the balance sheet date. Any gains or losses resulting from this translation are included in the current year's income. 16 9 DERIVATIVE FINANCIAL INSTRUMENTS To manage interest rate and currency exposures, the Group uses interest rate swaps and options as well as currency forwards and option contracts. The Group recognizes interest differentials on interest rate swaps and options as adjustments to interest expense in the period they occur. Realized and unrealized gains and losses arising from currency forwards are recognized as adjustments to the gains and losses resulting from the underlying transactions. Derivative instruments designated as a hedge of the Group's net asset exposures related to foreign subsidiaries are reflected in the currency translation adjustment section of shareholders' equity offsetting the translation gains or losses relating to those net asset exposures. FIXED ASSETS Fixed assets (property, plant and equipment) are stated at cost less depreciation. The assets are depreciated over their estimated useful lives, which vary from 10 to 50 years (1998 and 1997: 25 to 50 years) for buildings and structures, and 5 to 25 years (1998 and 1997: 3 to 12 years) for production facilities, machinery, plant, equipment and vehicles. Fixed assets are depreciated using the straight-line method over their estimated useful lives. During 1999, the Group adopted estimated useful lives for its operating assets which more accurately reflect industry practice. The effect of this change reduced depreciation expense for the year ended 31 December 1999 by CHF 118 million. The effect of this change on net income of continuing operations for the year ended 31 December 1999 was an increase of CHF 67 million. Long-term leasing arrangements, which effectively constitute assets purchased with long-term financing, are carried as fixed assets at their purchase price and are written off over their estimated useful lives. The corresponding liabilities are included in the long-term and short-term debts. INTANGIBLE ASSETS Intangibles include software, licenses, patents, trademarks and similar rights granted by third parties. These assets are amortized using the straight-line method over their estimated useful lives. GOODWILL At the time of their initial consolidation, the assets and liabilities of consolidated subsidiaries are recorded at their estimated fair value. Goodwill represents the difference between the purchase price and the fair value of the net identifiable assets acquired. Goodwill is capitalized and amortized on a straight-line basis over its estimated useful life not exceeding 20 years. Goodwill relating to acquisitions prior to 31 December 1994 was deducted from the consolidated reserves. INVENTORIES Inventories are reported at the lower of cost (purchase price or Group production cost) or market value (net realizable values). The cost of inventories is calculated using the weighted average method. Prorated production overheads are included in the valuation of inventories. Goods with long storage periods and obsolete goods are written down. 17 10 Work-in-progress relating to long-term construction contracts is accounted for using the percentage of completion method. RECEIVABLES Trade receivables as well as other receivables are disclosed at nominal values less expected economic adjustments at fair value. CASH AND CASH EQUIVALENTS Cash includes cash on hand, in postal and bank accounts, as well as short-term deposits. DEFERRED TAXES Tax expense is calculated using the balance sheet liability method. Additional deferred taxes are provided wherever temporary differences exist between the tax base of an asset or liability and its carrying amount in the consolidated results for the year. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in the respective jurisdictions in which the Group operates that are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. In assessing the realizability of deferred tax assets, management considers whether it is probable that some portion or all of the deferred tax assets will not be realized. For transactions and other events recognized directly in equity, any related tax effects are recognized directly in equity. RETIREMENT BENEFITS Most of the Group's subsidiaries operate their own pension plans, primarily legally independent from the Group. Generally, they are funded by employees and employer's contributions. A policy has been established whereby actuarial valuations are performed on a three-year basis and roll-forwards are conducted during the intervening period. The cumulative effect from initial application of IAS 19 as of 1 January 1995 is included as a transitional amount and is recognized as an asset or liability respectively, over a period not exceeding the expected remaining working lives of the participating employees. In following years, the actuarial gains and losses are recognized over the same period as above if the accumulated gain and loss exceed the corridor of 10% of the greater of plan assets and projected benefits obligation. Effective 1 January 1999, the Group adopted the provisions of IAS 19 revised. This revised standard permits companies to elect to amortize, or immediately recognize, any difference between the accumulated pension cost at transition and the funded status if that difference is an additional pension liability. The Group has elected to immediately recognize its additional pension liability consistent with IAS 8, as a change in accounting policy. 18 11 RESEARCH AND DEVELOPMENT Expenditures on research and development are not capitalized, but charged immediately to expense. Expenses for research and development include associated wages and salaries, material costs, as well as overhead costs. USE OF ESTIMATES The preparation of financial statements and related disclosures in conformity with International Accounting Standards requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenue and expenses during the period reported. Actual results could differ from those estimates. Estimates are used in accounting for allowances for uncollectible receivables, inventory obsolescence, depreciation, employee benefits, taxes, restructuring reserves and contingencies. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the financial statements in the period they are determined to be necessary. NOTE 1 - EXCHANGE RATES The following exchange rates were used to translate the significant currencies used by the Group:
EXCHANGE RATES BALANCE SHEET INCOME STATEMENT AVERAGE YEAR-END RATES CHF YEARLY RATES CHF ----------------------------- ---------------------------- 1997 1998 1999 1997 1998 1999 ---- ---- ---- ---- ---- ---- USA dollar 1 1.4535 1.3775 1.5955 1.4501 1.4497 1.5023 Canada dollar 1 1.0142 0.8896 1.0986 1.0474 0.9798 1.0117 Australia dollar 1 0.9513 0.8448 1.0423 1.0794 0.9135 0.9705 Great Britain pound sterling 1 2.4100 2.2860 2.5835 2.3747 2.4008 2.4303 Germany mark 100 81.3080 82.1190 82.0290 83.7200 82.3850 81.8240 France franc 100 24.2990 24.4870 24.4580 24.8700 24.5740 24.3970 Italy lira 100 0.0827 0.0829 0.0829 0.0853 0.0835 0.0827 Netherlands guilder 100 72.1560 72.8860 72.8020 74.4000 73.0860 72.6210 Spain peseta 100 0.9594 0.9657 0.9642 0.9912 0.9704 0.9618
NOTE 2 - RISK MANAGEMENT RISK MANAGEMENT ACTIVITIES The Group is exposed to market risk from changes in interest rates and currency exchange rates. To manage the volatility relating to these exposures, the Group enters into various derivative transactions pursuant to the Group's policies in areas such as counterparty exposure and hedging practices. Counterparties to these agreements are major international financial institutions. Positions are monitored using techniques such as market value and sensitivity analyses. The following tables present information for interest rate and foreign exchange contracts. The notional amount of derivatives summarized below represents the gross amount of the contracts 19 12 and includes already closed transactions which have not yet matured. Therefore the figures are not a direct measure of the Group's exposure. The market value approximates the cost to settle the outstanding contracts. These market value amounts should be viewed not in isolation but in relation to the market values of the underlying hedged transactions and the overall reduction in the Group exposure to adverse fluctuation of interest and foreign exchange rates.
1997 1998 1999 ------ ------ ------ INTEREST RATE CONTRACTS (In millions of CHF) Notional amount 1,478 1,471 1,030 Net negative market value (65) (57) (44) Net negative book value (31) (21) (36) DIFFERENCE MARKET VALUE / BOOK VALUE (34) (36) (8) CREDIT RISK 0 7 0
INTEREST RATE MANAGEMENT. The Group's policy is to manage interest cost using a mix of fixed and variable rate debt. In order to manage this mix in a cost efficient manner, the Group enters into interest rate swaps, to exchange, at specified intervals, the difference between fixed and variable interest amounts calculated by reference to a corresponding notional principal amount.
1997 1998 1999 ------ ------ ------ FOREIGN EXCHANGE CONTRACTS (In millions of CHF) Notional amount 2,128 2,620 5,258 Net negative market value (51) (61) (117) Net negative book value (51) (61) (117) DIFFERENCE MARKET VALUE / BOOK VALUE 0 0 0 CREDIT RISK 9 22 55
FOREIGN EXCHANGE MANAGEMENT. In managing its exposure to fluctuations in foreign currency exchange rates, the Group has entered into a variety of currency swaps, foreign exchange contracts and options. These agreements generally include the exchange of one currency for a second currency at a future date. COMMODITY RISK MANAGEMENT. In order to manage the volatility of LME pricing for aluminium, algroup enters into various derivative transactions pursuant to the Group's policies in areas such as counterparty exposure and hedging practices. The objective of such strategies is to protect the economic performance of the Group's upstream assets by stabilizing the associated revenue stream over a number of years. This objective is normally implemented on a multi-year basis by securing guaranteed selling prices for these commodities within pre-established price bands. These strategies are reviewed by management on a continuous basis, and rely mainly on the use of LME future and options. The key element of these strategies is to secure the profitability of the upstream assets by obtaining a guaranteed minimum price, in exchange for which the Group foregoes the right to participate in price increases in excess of the pre-established bands. Historically, the Group has found these strategies quite successful in safeguarding the financial performance of its upstream assets, especially in times when depressed LME pricing would normally lead to significant earnings volatility and poor financial results. As a consequence of the proposed merger of algroup with Alcan and Pechiney, these strategies have neither been completed nor continued in 1999 and the already implemented portions will mature in accordance with their terms. Until 2002, maximum selling prices will not 20 13 exceed USD 1 610 per metric ton, although lower prices may be achieved depending on LME market conditions at the relevant time. NOTE 3 - CHANGES IN THE SCOPE OF CONSOLIDATION In 1997, the following companies were acquired or newly consolidated: Alusuisse Tomos Doo, Koper, Slovenia (at 1 July 1997), (66,6% ownership interest) Lawson Mardon Wheaton (UK) Ltd., formerly ACIU Rockware, Kingston, Norwich, GB (at 29 July 1997). In 1998, the following company was acquired : Pacquet Oneida, Inc, Clifton, NJ, US (at 1 August 1998). See additional details in Note 25. NOTE 4 - MOVEMENTS IN FIXED ASSETS
CURRENCY FIXED INSURANCE TRANSLATION ASSETS NET VALUE AT 31 12 98 DIFFERENCES ADDITIONS DISPOSALS TRANSFERS AT 31 12 99 AT 31 12 99 AT 31 12 99 ----------- ----------- --------- --------- --------- ----------- ----------- ----------- (In millions of CHF) AT COST Land 139 4 1 (4) (15) 125 120 0 Buildings and structures 1,480 90 27 (13) 46 1,630 550 2,256 Production facilities, machinery,plant, equipment and vehicles 5,290 420 255 (116) 192 6,041 2,005 8,182 Construction in progress and advances for property, plant and equipment 247 16 185 (4) (225) 219 219 660 PROPERTY, PLANT AND EQUIPMENT 7,156 530 468 (137) (2) 8,015 2,894 11,098 Intangible assets 73 2 16 (4) 2 89 27 Goodwill 264 39 11 0 0 314 255 Other non-current assets and deferred items 87 10 71 (50) 0 118 118 Investments in affiliates 117 (1) 27 (9) 0 134 34 Long-term loans and advances 17 0 0 (6) 0 11 7 ----- --- --- ---- ---- ----- ----- TOTAL FIXED ASSETS 7,714 580 593 (206) 0 8,681 3,335 ===== === === ==== ==== ===== =====
21 14 NOTE 4 - MOVEMENTS IN FIXED ASSETS - (CONTINUED)
CURRENCY ACCUMULATED TRANSLATION DEPRECIATION ACCUMULATED DEPRECIATION AT 31 12 98 DIFFERENCES ADDITIONS DISPOSALS TRANSFERS AT 31 12 99 ----------- ------------ --------- --------- --------- ------------ (In millions of CHF) Land (impairment) (17) (1) 0 0 13 (5) Buildings and structures (991) (62) (25) 11 (13) (1,080) Production facilities, machinery, plant, equipment and vehicles (3,668) (221) (257) 110 0 (4,036) ------ ---- ---- --- --- ------ PROPERTY, PLANT AND EQUIPMENT (4,676) (284) (282) 121 0 (5,121) Intangible assets (55) (1) (10) 4 0 (62) Goodwill (36) (7) (16) 0 0 (59) Investments in affiliates (98) 2 (4) 0 0 (100) Long-term loans and advances (6) 1 0 1 0 (4) ------ ---- ---- --- --- ------ TOTAL DEPRECIATION (4,871) (289) (312) 126 0 (5,346) ====== ==== ==== === === ====== TOTAL FIXED ASSETS NET 2,843 291 281 (80) 0 3,335 ====== ==== ==== === === ======
Commitments for capital expenditure in property, plant and equipment amount to CHF 77 million at 31 December 1999 (1998: CHF 101 million, 1997: CHF 89 million). During 1999, the Group adopted estimated useful lives for its operating assets which more accurately reflect industry practice. The effect of this change reduced depreciation expense for the year ended 31 December 1999 by CHF 118 million. 22 15 NOTE 4 - MOVEMENTS IN FIXED ASSETS - (CONTINUED)
CHANGE CURRENCY IN THE FIXED AT TRANSLATION SCOPE OF AT ASSETS NET AT COST 31 12 97 DIFFERENCES CONSOLIDATION ADDITIONS DISPOSALS TRANSFERS 31 12 98 AT 31 12 98 - -------- -------- ----------- ------------- --------- --------- --------- -------- ----------- (In millions of CHF) Land 139 (3) 3 2 (2) 0 139 122 Buildings and structures 1,488 (35) 10 13 (4) 8 1,480 489 Production facilities, machinery, plant, equipment and vehicles 5,106 (167) 66 211 (128) 202 5,290 1,622 Construction in progress and advances for property, plant and equipment 193 (7) 0 281 (10) (210) 247 247 ----- ---- -- --- ---- ---- ----- ----- PROPERTY, PLANT AND EQUIPMENT 6,926 (212) 79 507 (144) 0 7,156 2,480 Intangible assets 60 (2) 0 16 (1) 0 73 18 Goodwill 270 (12) 2 4 0 0 264 228 Other noncurrent assets and deferred items 122 (3) 0 0 (32) 0 87 87 Investments in affiliates 119 1 0 4 (7) 0 117 19 Long-term loans and advances 78 (3) 0 0 (58) 0 17 11 ----- ---- -- --- ---- ---- ----- ----- TOTAL FIXED ASSETS 7,575 (231) 81 531 (242) 0 7,714 2,843 ===== ==== == === ==== ==== ===== =====
CHANGE ACCUMULATED CURRENCY IN THE DEPRECIATION AT TRANSLATION SCOPE OF AT ACCUMULATED DEPRECIATION 31 12 97 DIFFERENCES CONSOLIDATION ADDITIONS DISPOSALS TRANSFERS 31 12 98 - ------------------------- --------- ----------- ------------- --------- --------- --------- ------------ (In millions of CHF) Land (impairment) (17) 0 0 0 0 0 (17) Buildings and structures (983) 24 0 (35) 3 0 (991) Production facilities, machinery, plant, equipment and vehicles (3,518) 95 (32) (330) 117 0 (3,668) ------ --- --- ---- ---- -- ------ PROPERTY, PLANT AND EQUIPMENT (4,518) 119 (32) (365) 120 0 (4,676) Intangible assets (52) 2 0 (6) 1 0 (55) Goodwill (23) 2 0 (15) 0 0 (36) Investments in affiliates (98) 0 0 0 0 0 (98) Long-term loans and advances (27) 1 0 0 20 0 (6) ------ --- --- ---- ---- -- ------ TOTAL DEPRECIATION (4,718) 124 (32) (386) 141 0 (4,871) ====== ==== === ==== ==== -- ====== TOTAL FIXED ASSETS NET 2,857 (107) 49 145 (101) 0 2,843 ====== ==== === ==== ==== == ======
23 16 NOTE 4 - MOVEMENTS IN FIXED ASSETS - (CONTINUED)
CURRENCY CHANGE IN THE TRANSLATION SCOPE OF FIXED ASSETS AT COST AT 31 12 96 DIFFERENCES CONSOLIDATION ADDITIONS DISPOSALS TRANSFERS AT 31 12 97 AT 31 12 97 - ------- ----------- ----------- ------------- --------- --------- --------- ----------- ------------ (In millions of CHF) Land 132 (2) 9 1 (1) 0 139 122 Buildings and structures 1,367 (14) 27 27 (3) 84 1,488 505 Production facilities, machinery, plant, equipment and vehicles 4,579 (112) 193 237 (63) 272 5,106 1,588 Construction in progress and advances for property, plant and equipment 285 (3) 1 266 0 (356) 193 193 ----- ---- --- --- ---- --- ----- ----- PROPERTY, PLANT AND EQUIPMENT 6,363 (131) 230 531 (67) 0 6,926 2,408 Intangible assets 55 (1) 0 6 0 0 60 8 Goodwill 251 19 0 0 0 0 270 247 Other noncurrent assets and deferred items 158 (2) 5 0 (39) 0 122 122 Investments in affiliates 155 (3) (25) 0 (8) 0 119 21 Long-term loans and advances 130 (1) 0 0 (51) 0 78 51 ----- ---- --- --- ---- --- ----- ----- TOTAL FIXED ASSETS 7,112 (119) 210 537 (165) 0 7,575 2,857 ====== ==== === === ==== === ===== =====
CURRENCY CHANGE IN THE ACCUMULATED TRANSLATION SCOPE OF DEPRECIATION ACCUMULATED DEPRECIATION AT 31 12 96 DIFFERENCES CONSOLIDATION ADDITIONS DISPOSALS TRANSFERS AT 31 12 97 - ------------------------ ----------- ----------- ------------- --------- --------- --------- ------------ (In millions of CHF) Land (impairment) (17) 0 0 0 0 0 (17) Buildings and structures (948) 12 (15) (34) 2 0 (983) Production facilities, machinery, plant, equipment and vehicles (3,210) 70 (135) (306) 63 0 (3,518) ------ --- ---- ---- ---- - ------ PROPERTY, PLANT AND EQUIPMENT (4,175) 82 (150) (340) 65 0 (4,518) Intangible assets (47) 2 0 (7) 0 0 (52) Goodwill (8) (1) 0 (14) 0 0 (23) Investments in affiliates (85) 2 (15) 0 0 0 (98) Long-term loans and advances (26) 0 0 (1) 0 0 (27) ------ --- ---- ---- ---- - ------ TOTAL DEPRECIATION (4,341) 85 (165) (362) 65 0 (4,718) ------ --- ---- ---- ---- - ------ TOTAL FIXED ASSETS NET 2,771 (34) 45 175 (100) 0 2,857 ====== === ==== ==== ==== = ======
24 17 NOTE 5 - LEASES The Group had approximately CHF 3 million of equipment acquired under capital leases at 31 December 1999 (1998: 2 million). Commitments for capital leases and non-cancelable operating leases at year-end are due as follows:
1998 1998 1999 1999 ------- --------- ------- --------- YEAR CAPITAL OPERATING CAPITAL OPERATING LEASES LEASES LEASES LEASES -------- --------- ------- --------- (In millions of CHF) (In millions of CHF) 1999 1 14 0 0 2000 1 11 1 12 2001 0 9 1 10 2002 0 8 1 7 Thereafter 0 55 1 59 - -- - --- TOTAL FUTURE MINIMUM LEASE PAYMENTS 2 97 4 88 = == = === Less amount representing interest 0 0 1 0 Present value of net minimum lease payments 2 0 3 0
NOTE 6 - INVESTMENTS IN AFFILIATES
KEY FIGURES 1997 1998 1999 ------ ------ ------ (In millions of CHF) Total assets 35 39 45 Total liabilities 26 22 32 Turnover 54 77 76 Net income 2 6 4
These key figures pertaining to investments held, using the equity method of accounting, primarily reflect the Group's interest in the following companies: Alufluor Aktiebolag, Helsingborg, Sweden; Metallica SA, Lausanne, Switzerland. NOTE 7 - INVENTORIES
1997 1998 1999 ------- ------- ------- (In millions % (In millions % (In millions % of CHF) of CHF) of CHF) Raw materials 221 20 216 19 256 21 Work in process and finished goods 650 60 657 59 694 57 Others 221 20 247 22 276 22 ----- --- ----- --- ----- --- TOTAL 1,092 100 1,120 100 1,226 100 ===== === ===== === ===== ===
25 18 NOTE 8 - TRADE RECEIVABLES
1997 1998 1999 ---- ---- ------ (In millions of CHF) Receivables from customers 949 917 1,056 Accounts receivable from affiliates 25 45 69 Value adjustments (34) (36) (38) --- --- ----- TOTAL 940 926 1,087 === === =====
Credit risk is diversified due to the large number of entities comprising the Group's customer base and the Group's dispersion across many different industries and regions. NOTE 9 - OTHER RECEIVABLES, PREPAID EXPENSES AND ACCRUED INCOME
1997 1998 1999 ---- ---- ---- (In millions of CHF) Other receivables 198 115 178 Prepaid taxes and social security payments 74 60 56 Prepaid expenses and accrued income 60 67 84 Accrued interest income 36 83 21 --- --- --- TOTAL 368 325 339 === === ===
NOTE 10 - CASH AND CASH EQUIVALENTS
1997 1998 1999 ---- ---- ---- (In millions of CHF) Cash 312 309 125 Short-term deposits 16 51 486 --- --- --- TOTAL 328 360 611 === === ===
NOTE 11 - PLEDGES AND ASSETS UNDER RESERVATION OF OWNERSHIP The assets pledged for security related to the Group's liabilities are approximately CHF 58 million at 31 December 1999 (1998: CHF 55 million, 1997: CHF 83 million). NOTE 12 - CHANGES IN SHAREHOLDERS' EQUITY SHARE CAPITAL TRANSACTIONS In 1999 the ordinary Shareholders' Meeting for the 1998 reporting year was held on 20 May 1999 and an extraordinary Shareholders' Meeting was held on 18 October 1999 for the period 1 January - 31 August 1999. In the reporting period 1 January - 31 August 1999, conversion rights were exercised on 9 155 registered shares with a par value of approximately CHF 1 million, of these a total of 4 625 registered shares as part of the employee participation program, and 4 530 registered shares through conversion of the 2 1/4% 1995-2002 convertible bond issue. 26 19 At the Shareholders' Meeting of 18 October 1999, an increase in the capital subject to a condition of 72,524 registered shares was approved. In the reporting period 1 September - 31 December 1999, conversion rights were exercised on 129,064 registered shares with a par value of approximately CHF 13 million. All issued shares are in circulation and therefore are entitled to voting rights and dividend payments in accordance with algroup's Articles of Association. At 31 December 1999, the capital subject to a condition comprised 485,880 (1998: 551,575; 1997: 598,555) registered shares totaling approximately CHF 49 million (1998: approximately CHF 55 million; 1997: approximately CHF 75 million). Of these, the following are reserved: A TOTAL OF 1,520 shares (1998: 91,475 shares; 1997: 126,070 shares) for securing conversion rights on the 2 1/4% convertible bond issue maturing in 2002, with conversion possible during 1995-2002; A TOTAL OF 365,594 registered shares (1998: 234,570 shares; 1997: 238,865 shares) for conversion rights on the 2% 1996-2001 convertible bond issue from Alusuisse-Lonza Finance Ltd.; A TOTAL OF 33,429 (1998: 38,054; 1997: 42,485) for the employee participation program; and A TOTAL OF 85,337 shares (1998: 187,476 shares; 1997: 191,135 shares) for the purchase of new shares from future negotiable and warrant issues. Further information is shown under "consolidated statement of shareholder's equity". NOTE 13 - LONG-TERM PROVISIONS
1997 1998 1999 ---- ---- ---- (In millions of CHF) Deferred taxes 201 212 232 Retirement benefits 226 227 262 Others 206 169 147 --- --- --- TOTAL 633 608 641 === === ===
The provisions for retirement benefits comprise primarily the pension liability of the Group's defined benefit pension plans as disclosed in Note 27. Included in the above amounts are provisions for healthcare relating to the Group's US subsidiaries. 27 20 NOTE 14 - NET DEBT The net debt is comprised of:
1997 1998 1999 ----- ------ ------ (In millions of CHF) LONG-TERM DEBT Bonds 828 867 766 Due to banks and others: Banks 612 261 290 Leasing 23 18 0 Others 5 3 6 Other financial institutions 56 51 26 ----- ----- ----- TOTAL 1,524 1,200 1,088 ===== ===== =====
Debt due after more than five years in 1999: CHF 0 million (1998: CHF 70 million, 1997: CHF 219 million).
1997 1998 1999 ---- ---- ------ SHORT-TERM DEBT (In millions of CHF) Due to banks and other financial institutions 876 966 1,049 Others 16 14 21 Due to Lonza Group 0 0 635 Long-term debt due within one year 68 3 0 ----- ----- ----- TOTAL 960 983 1,705 ----- ----- ----- TOTAL DEBT 2,484 2,183 2,793 ===== ===== ===== 1997 1998 1999 ------ ----- ----- LOANS AND ADVANCES (In millions of CHF) Long-term loans and advances (51) (11) (7) Short-term advances and other financial assets (33) (17) (10) Due from Lonza Group 0 0 (64) Cash and cash equivalents (328) (360) (611) ----- ----- ----- TOTAL (412) (388) (692) ===== ===== ===== NET DEBT 2,072 1,795 2,101 ===== ===== =====
Loans and advances to unconsolidated affiliates amounted to CHF 1 million (1998: CHF 13 million, 1997: CHF 12 million), whereas the debt owed to them amounted to CHF 18 million (1998: CHF 24 million, 1997: CHF 18 million). 28 21 NOTE 14 - NET DEBT (CONTINUED)
1997 1998 1999 ----------------- ---------------------------- ---------------------------- % % AVERAGE AVERAGE (IN MILLIONS (IN MILLIONS INTEREST (IN MILLIONS INTEREST BREAKDOWN OF DEBTS BY CURRENCIES OF CHF) % OF CHF) % RATES OF CHF) % RATES ------------ --- ------------ --- --------- ------------ --- ----------- Swiss franc 699 28 411 19 5.12 1,086 39 3.22 Pound sterling 465 19 435 20 7.29 333 12 6.27 US dollar 918 37 909 42 4.67 994 35 5.59 Australian dollar 54 2 120 5 5.12 148 5 5.79 Canadian dollar 0 0 88 4 5.52 102 4 5.89 Euro 0 0 173 8 3.96 111 4 3.42 Others 348 14 47 2 6.30 19 1 4.75 ----- --- ----- --- ----- --- TOTAL 2,484 100 2,183 100 2,793 100 ===== === ===== === ===== ===
NOTE 15 - OTHER LIABILITIES AND DEFERRED ITEMS
1997 1998 1999 ---- ---- ---- (In millions of CHF) Short-term provisions 315 266 208 Capital tax payables 30 17 20 Current tax payables 33 63 73 Other liabilities 229 245 354 Accrued liabilities and deferred items 185 66 137 Accrued interest payables 40 108 297 --- --- ----- TOTAL 832 765 1,089 === === =====
NOTE 16 - TRADE PAYABLES
1997 1998 1999 ---- ---- ---- (In millions of CHF) Payable to third parties 710 647 694 Payable to affiliates 42 55 57 --- --- ----- TOTAL 752 702 751 === === =====
29 22 NOTE 17 - BONDS
1997 1998 1999 ORIGINAL NOT LONG-TERM LONG-TERM LONG-TERM BOND AMOUNT REDEEMABLE INTEREST IN MILLION IN MILLION IN MILLION IN MILLION MATURITY BEFORE RATE % OF CHF OF CHF OF CHF ------------- -------- ---------- -------- ---------- ---------- ------------ Alusuisse Lonza D CHF 150 9/1/01 1999 6.75 150 150 0 Group Ltd. D CHF 150 9/3/03 2001 6.75 150 150 150 C CHF 240 9/5/02 - 2.25 126 91 2 Lotschen 1) D CHF 50 9/3/03 2001 5.00 50 50 0 Alusuisse Lonza C USD 252 9/6/01 2000 2.00 342 320 308 Finance Ltd. 2) E CHF 10 9/7/02 2001 5.25 10 10 10 E DEM 16 9/8/08 2001 3.72 0 13 13 E DEM 25 9/8/08 2001 3.77 0 21 21 ALA (Nevada) Inc. E USD 45 9/8/01 2001 0.50 0 62 56 E CHF 200 9/9/06 2000 1.25 0 0 206 --- --- --- TOTAL 828 867 766 === === ===
Debenture issue Convertible issue Euro Medium Term Note Program 1) The Lotschen bond listed in the table above was transferred to Lonza Group in 1999 in connection with the demerger of the chemicals and energy activities. 2) Net of unamortized discount of USD 14.3 million (1998: USD 12.4 million, 1997: USD 17.1 million), effective interest rate 4.25%. Note: Certain bonds can be redeemed prior to their original maturity date. 30 23 NOTE 18 - CONTINGENT LIABILITIES Contingent liabilities concern bills discounted, purchase commitments and guarantees given to third parties in the ordinary course of business. The Group's contingent liabilities at 31 December 1999 were approximately CHF 201 million (1998: CHF 189 million, 1997: CHF 214 million). Various lawsuits and claims are pending against the Group and its subsidiaries for losses allegedly incurred under contracts, personal injury, property and environmental damage, and franchise and property tax assessments. In the opinion of management, disposition of these lawsuits and claims will not involve sums that would have a material, adverse effect upon the consolidated financial position, operations, or cash flows of the Group. NOTE 19 - OTHER OPERATING INCOME AND EXPENSES
1997 1998 1999 ---- ---- ---- (In millions of CHF) Other operating income 69 135 439 Other operating expenses (909) (886) (1,223) ---- ---- ------ TOTAL (840) (751) (784) ==== ==== ======
Apart from the repair and maintenance costs of CHF 343 million (1998: CHF 345 million; 1997: CHF 336 million), the major items reported under other operating expenses are selling, general and administrative expenses. NOTE 20 - INTEREST INCOME AND EXCHANGE GAINS
1997 1998 1999 ---- ---- ---- (In millions of CHF) Interest income 58 64 81 Other financial income 20 47 42 -- --- --- TOTAL 78 111 123 == === ===
NOTE 21 - INTEREST EXPENSES AND EXCHANGE LOSSES
1997 1998 1999 ---- ---- ---- (In millions of CHF) Interest expenses (224) (219) (230) Other financial expenses (24) (51) (50) ---- ---- ---- TOTAL (248) (270) (280) ==== ==== ====
NOTE 22 - INCOME FROM INVESTMENTS
1997 1998 1999 ---- ---- ---- (In millions of CHF) Dividend earned 0 1 1 Income from application of the equity method 5 4 7 - - - TOTAL 5 5 8 = = =
31 24 NOTE 23 - INCOME TAXES
1997 1998 1999 ---- ---- ---- (In millions of CHF) MAJOR COMPONENTS OF TAX EXPENSE Current taxes (50) (61) (94) Deferred tax expense relating to the origination and (33) (46) (51) reversal of temporary differences Deferred tax expense (income) resulting from tax 1 0 5 --- ---- ---- rate changes TOTAL (82) (107) (140) === ==== ==== RECONCILIATION OF TAX EXPENSE Tax at the domestic rates applicable to the profits earned 122 141 223 in the country concerned Tax effect of expenses that are not deductible for tax 3 11 12 purposes Tax capital gain on demerger 0 0 10 Tax credits and other incentives earned 0 (8) (16) Tax benefits from previously unrecognized tax losses (48) (36) (29) Tax benefits from change in valuation allowance 0 0 (23) Deferred tax benefit from tax rate changes (1) 0 (5) All other 6 (1) (32) --- --- --- TOTAL 82 107 140 === === === DEFERRED TAX EXPENSES CHARGED DIRECTLY TO EQUITY 0 4 (22) --- --- ---
Capital taxes of CHF 27 million (1998: CHF 30 million; 1997: CHF 40 million) are contained in other operating expenses.
COMPONENTS OF DEFERRED INCOME TAX BALANCES 1997 1998 1999 ASSETS LIABILITIES ASSETS LIABILITIES ASSETS LIABILITIES ------ ----------- ------ ----------- ------ ----------- (In millions of CHF) Short-term operating provisions 23 27 17 6 27 28 ong-term operating provisions 44 16 10 50 26 3 Property, plant and equipment 0 141 0 140 0 196 Pension benefits 0 17 0 16 0 5 Tax loss carry forwards 114 0 79 0 98 0 --- --- --- --- --- --- SUBTOTAL 181 201 106 212 151 232 === === === === === === Valuation allowance (78) 0 (33) 0 (54) 0 DEFERRED INCOME TAXES 103 201 73 212 97 232 These amounts are included in the following captions in the balance sheet: Other noncurrent assets and deferred items 103 73 97 Long-term provisions (201) (212) (232) NET DEFERRED TAX LIABILITY (98) (139) (135)
32 25 NOTE 24 - REVIEW OF FIXED ASSETS, ESTIMATED USEFUL LIVES During 1999, the Group adopted estimated useful lives for its operating assets which more accurately reflect industry practice. In order to allow for a meaningful comparison with the prior year, the data below reflect the impact of the change of useful lives for Group assets on selected financial information.
1999 1999 BEFORE THE AS CHANGE REPORTED VARIANCE ---------- -------- -------- (In millions of CHF) BALANCE SHEET Accumulated depreciation (5,242) (5,121) 121 Other noncurrent assets and deferred items 117 118 1 Inventories, net 1,237 1,226 (11) Total assets 6,561 6,672 111 Total shareholders' equity 1,288 1,358 70 Minority interests 39 40 1 Long-term provisions 601 641 40 Total liabilities and shareholders' equity 6,561 6,672 111 INCOME STATEMENT Changes in inventories (23) (34) (11) Depreciation and amortization (410) (292) 118 Operating income 645 752 107 Income taxes (101) (140) (39) Income attributable to minorities (6) (7) (1) Net income 373 440 67 CASH FLOW STATEMENT Income from continuing operations 373 440 67 Depreciation of property, plant and equipment 400 282 (118) Increase in long-term provisions 4 43 39 Increase in net working capital (32) (20) 12 Net cash provided by operating activities 764 764 0 SEGMENT DATA - BY BUSINESS SEGMENT : OPERATING INCOME Primary materials and fabricated products 359 409 50 Food flexible and tobacco packaging 205 239 34 Pharmaceutical and cosmetics packaging 97 119 22 Total Group 645 752 107 NET CAPITAL INVESTED Primary materials and fabricated products 2,080 2,131 51 Food flexible and tobacco packaging 935 971 36 Pharmaceutical and cosmetics packaging 802 825 23 Total Group 3,824 3,934 110 PERCENTAGE RETURN ON SALES Primary materials and fabricated products 11.7 13.3 1.6 Food flexible and tobacco packaging 9.5 11.0 1.5 Pharmaceutical and cosmetics packaging 7.5 9.2 1.7 Total Group 8.5 9.9 1.4
33 26
1999 1999 BEFORE THE AS CHANGE REPORTED VARIANCE ---------- -------- -------- (In millions of CHF) RETURN ON NET CAPITAL INVESTED Primary materials and fabricated products 18.8 21.1 2.3 Food flexible and tobacco packaging 23.1 26.5 3.4 Pharmaceutical and cosmetics packaging 12.9 15.6 2.7 Total Group 17.9 20.6 2.7
NOTE 25 - PURCHASE AND/OR SALE OF CONSOLIDATED COMPANIES
PURCHASE PURCHASE SALE SALE 1997 1998 1998 1999 -------- -------- ---- ---- (In millions of CHF) Cash 13 (1) 4 0 Current assets 15 (20) 142 1 Goodwill 0 (4) 0 0 Property, plant and equipment and other fixed assets 15 (46) 128 2 Total liabilities (12) 9 (59) (1) PURCHASE OR SALES PRICES 31 (62) 215 2 Minus cash (13) 1 (4) 0 CASH OUTLAY (NET) 18 (61) - - CASH INFLOW - - 211 2
NOTE 26 - RESEARCH AND DEVELOPMENT Research and development expenses reflect primarily the cost incurred in basic scientific research and development. In 1999, these expenses amounted to CHF 65 million (1998: CHF 65 million; 1997: CHF 76 million). NOTE 27 - PENSION BENEFITS The Group sponsors pension plans according to the regulations of the countries in which it operates. All significant plans provide defined benefits on retirement. The benefits are based primarily on years of service and the employees' compensation for certain periods during the last years of employment. As of 1 January 1995, the Group has adopted the IAS 19 Retirement Benefit Costs. During 1999, actuarial valuations were performed for all significant defined benefit plans using the projected unit credit valuation method. A policy has been established whereby actuarial valuations are performed on a three-year basis and roll-forwards are conducted as of 31 December each year during the intervening period. The weighted average assumptions used in the actuarial valuations are according to the underlying national economic conditions of the respective countries:
1997 1998 1999 ---- ---- ---- Discount rate 6.0% 5.8% 5.1% Expected long-term rates of return on plan assets 6.8% 6.7% 5.8% Rate of increase in compensation 3.8% 3.6% 3.0%
Except for the Group's German subsidiaries, pension costs are generally funded currently within national regulatory limitations. The projected benefit obligation for the German 34 27 subsidiaries is included in the following table. The funded status for substantially all defined benefit plans, shown separately for plans whose assets exceeded and are less than the projected benefit obligation, is as follows:
PLANS WITH ASSETS PLANS WITH PBO IN EXCESS OF PBO IN EXCESS OF ASSETS ------------------------------- --------------------------- 1997 1998 1999 1997 1998 1999 ------ ------ ------ ---- ----- ---- (In millions of CHF) Projected benefit obligation (PBO) (2,389) (1,332) (2,823) (574) (1,849) (504) Plan assets at fair value 2,577 1,453 3,111 324 1,517 276 PLAN ASSETS IN EXCESS OF (LESS THAN) PROJECTED BENEFIT OBLIGATION 188 121 288 (250) (332) (228) Long-term provisions 0 0 0 208 202 170 FUNDED STATUS 188 121 288 (42) (130) (58)
The pension asset and liability calculated above are disclosed in the financial statements for 1999. The net change of the prepaid pension cost in 1999 amounted to CHF 28 million (1998: CHF 8 million) and is reflected under prepaid expenses and accrued income. The prepaid pension cost at the end of 1999 is CHF 15 million (1998: CHF 109 million, 1997: CHF 101 million). Effective 1 January 1999, the Group adopted the provisions of IAS 19 revised. This revised standard permits companies to elect to amortize, or immediately recognize, any difference between the accumulated pension cost at transition and the funded status if that difference is an additional pension liability. The Group has elected to immediately recognize its additional pension liability consistent with IAS 8, as a change in accounting policy. The amount of additional liability recognized was CHF 132 million upon adoption of IAS 19 revised. Net periodic pension costs for the Group's significant defined benefit plans consist of the following:
1997 1998 1999 ---- ---- ---- (In millions of CHF) Service costs 44 55 61 Interest costs 161 179 166 Actual return on assets (168) (196) (197) Net amortization and deferral (8) (7) 0 ---- ---- ---- TOTAL 29 31 30 ==== ==== ====
NOTE 28 - DISCONTINUING OPERATIONS The discontinuing operations are composed of the following activities: a) At the extraordinary Shareholders' Meeting of algroup of 18 October 1999, the shareholders approved the demerger of the chemical business (composed of two divisions of the Group, Fine Chemicals and Specialties and Intermediates and Additives) and the energy businesses free of any net financial debt as of 1 July 1999. The above-mentioned activities are treated as discontinuing operations. The net assets of the chemical business were deducted from the Group's equity on 1 November 1999. In order to reflect the debt-free status of the chemical business effective 1 July 1999, as stated in the Separation and Demerger Agreement, all debt - and accordingly the interest positions - are classified under continuing operations. 35 28 b) In 1997, the Group had identified several operations, mainly in its Food Flexible and Tobacco Packaging division, as not being strategic businesses to the Group. In July 1997, these activities were proposed for divestiture and accordingly classified as discontinuing operations. This divestment program was completed in the second half of 1998. The Group's financial statements reflect the net income of discontinuing operations as a separate item and the related assets and liabilities have been classified in the consolidated balance sheet as net assets of discontinuing operations. The components of net operating assets, net income and cash flow provided by (used in) discontinuing operations are as follows:
SUMMARIZED BALANCE SHEET 1997 1998 1999 ---- ---- ---- (In millions of CHF) Fixed assets 1,913 1,994 0 Current assets 1,005 902 0 Current liabilities (638) (677) 0 Other assets and liabilities (400) (410) 0 ----- ----- ----- NET ASSETS DISCONTINUING OPERATIONS 1,880 1,809 0 ===== ===== ===== 1 01 - 31 10 1997 1998 1999 ---- ---- ---- SUMMARIZED INCOME STATEMENT (In millions of CHF) NET SALES 2,537 2,263 1,806 Operating expenses and others (2,143) (1,796) (1,375) Depreciation and amortization (181) (184) (128) ----- ----- ----- EARNINGS BEFORE INTEREST, TAXES AND MINORITY INTEREST 213 283 303 ===== ===== ===== Financial income (1) 1 3 Income taxes (68) (78) (70) (Income) / loss attributable to minorities 0 2 2 ----- ----- ----- NET INCOME FROM DISCONTINUING OPERATIONS 144 208 238 ===== ===== ===== 1 01 - 31 10 1997 1998 1999 ---- ---- ---- SUMMARIZED CASH FLOW STATEMENT (In millions of CHF) NET CASH PROVIDED BY OPERATING ACTIVITIES 227 367 318 Net cash used in investing activities (381) (342) (1,236) Net cash provided by (used in) financing activities (1) (2) 918
NOTE 29 - BOARD OF DIRECTORS AND MAJOR SHAREHOLDERS There are no receivables or liabilities due from or to Directors or shareholders (1998: none). In 1999, payments to the Board of Directors of Alusuisse Lonza Group Ltd. totaled CHF 1.2 million (1998: CHF 1.2 million, 1997: CHF 1.3 million). NOTE 30 - YEAR 2000 To date, the Group has not experienced any year 2000 problems with any of our internal systems or our products, and we do not expect to experience such problems in the future. All costs associated with Year 2000 system adjustments have been charged to expenses as incurred. 36 29 NOTE 31 - COMBINATION AGREEMENT WITH ALCAN AND PECHINEY On 11 August 1999, algroup announced that it agreed to the principal terms of a three-way combination agreement with Alcan Aluminium Limited (Alcan) and Pechiney SA (Pechiney). The combination was to be accomplished through two independent exchange offers in which shares in Alcan were to be issued. In connection therewith, algroup demerged its chemical and energy businesses effective 1 November 1999 (see Note 28). Under the Demerger Agreement between algroup and Lonza Group AG, Lonza Group AG was permitted to retain USD 234 million in "excess" cash in connection with the demerger. However, this amount was to be reduced to USD 67 million in the event that Pechiney did not participate in the APA combination, and paid as part of the formula by which Lonza Group AG was demerged from algroup with no net debt. In the absence of an amendment to the terms of both the Demerger Agreement and the Combination Agreement, and following the termination of the Combination Agreement with respect to Pechiney, the USD 167 million excess cash was due from Lonza Group AG to algroup as of 30 June 2000. NOTE 32 - SEGMENT DATA
NET SALES TO CUSTOMERS (1) OPERATING INCOME ----------------------------- ----------------------------- 1997 1998 1999 1997 1998 1999 ------ ------ ------ ------ ------ ------ BY DIVISION (In millions of CHF) (In millions of CHF) Primary materials and fabricated products 2,735 3,079 3,076 300 340 409 Food flexible and tobacco packaging 2,092 2,119 2,164 169 176 239 Pharmaceutical and cosmetics packaging 1,249 1,268 1,299 116 90 119 Packaging Holding and others 4 6 12 (2) (1) (15) ----- ----- ----- --- --- --- SUBTOTAL 6,080 6,472 6,551 583 605 752 Trading 1,158 1,025 1,064 NA NA NA ----- ----- ----- --- --- --- TOTAL 7,238 7,497 7,615 583 605 752 ===== ===== ===== === === ===
(1) Intersegment sales for 1997-1999, which were based primarily on prevailing market prices, have been eliminated.
NET CAPITAL INVESTED (2) ----------------------------------------- BY DIVISION 1997 1998 1999 ------ ------ ------ (In millions of CHF) Primary materials and fabricated products 1,599 1,739 2,131 Food flexible and tobacco packaging 786 835 971 Pharmaceutical and cosmetics packaging 643 692 825 Holding and others 45 85 7 ----- ----- ----- SUBTOTAL 3,073 3,351 3,934 Trading NA NA NA ----- ----- ----- TOTAL 3,073 3,351 3,934 ===== ===== =====
(2) Net capital invested comprises all assets and liabilities committed to the segment operations at historical year end rates. 37 30
PERCENTAGE RETURN ON NET BY DIVISION RETURN ON SALES CAPITAL INVESTED (3) --------------------------- -------------------------- % 1997 1998 1999 1997 1998 1999 ---- ---- ---- ---- ---- ---- Primary materials and fabricated products 11.0 11.0 13.3 18.0 19.6 21.1 Food flexible and tobacco packaging 8.1 8.3 11.0 21.1 20.8 26.5 Pharmaceutical and cosmetics packaging 9.3 7.1 9.2 18.5 13.2 15.6 Holding and others na na NA NA NA NA SUBTOTAL 9.6 9.4 11.5 18.5 18.1 20.6 TRADING NA NA NA NA NA NA TOTAL 8.1 8.1 9.9 18.5 18.1 20.6
NET SALES TO CUSTOMERS OPERATING INCOME ----------------------------- --------------------------- 1997 1998 1999 1997 1998 1999 ------ ----- ----- ---- ---- ---- BY REGION (In millions of CHF) (In millions of CHF) Europe 5,769 5,993 5,793 372 411 494 Other regions 1,469 1,504 1,822 211 194 258 ----- ----- ----- --- --- --- TOTAL 7,238 7,497 7,615 583 605 752 ===== ===== ===== === === ===
NET CAPITAL INVESTED (2) ---------------------------- 1997 1998 1999 ---- ---- ---- BY REGION (In millions of CHF) Europe 2,172 2,366 2,659 Other regions 901 985 1,275 ----- ----- ----- TOTAL 3,073 3,351 3,934 ===== ===== =====
(2) Net capital invested comprises all assets and liabilities committed to the segment operations at historical year end rates.
BY REGION PERCENTAGE RETURN ON NET RETURN ON SALES CAPITAL INVESTED (3) --------------------------- -------------------------- % 1997 1998 1999 1997 1998 1999 ---- ---- ---- ---- ---- ---- Europe 6.4 6.9 8.5 17.1 17.4 19.5 Other regions 14.4 12.9 14.2 23.4 19.9 23.0 TOTAL 8.1 8.1 9.9 19.0 18.1 20.6
(3) Calculated at historical yearly average rates and including algroup companies acquired during the financial year. SALES
1997 1998 1999 ------------------- ------------------- ------------------- (IN MILLIONS (IN MILLIONS (IN MILLIONS OF CHF) % OF CHF) % OF CHF) % ------------ --- ------------ --- ------------ --- BY PRODUCTION AREA Switzerland 3,410 34 3,513 35 3,419 33 EU 4,625 46 4,628 46 4,504 44 Rest of Europe 271 3 306 2 293 3 ------ --- ------ --- ------ --- EUROPE 8,306 83 8,447 83 8,216 80 North America 1,267 13 1,310 13 1,615 16 Other areas 387 4 374 4 405 4 ------ --- ------ ---- ------ --- SUBTOTAL 9,960 100 10,131 100 10,236 100 (Intercompany sales) (2,722) (2,634) (2,621) ------ ------ ------ TOTAL 7,238 7,497 7,615 ====== ====== ======
38 31
1997 1998 1999 ------------------- ------------------- ------------------- (IN MILLIONS (IN MILLIONS (IN MILLIONS OF CHF) % OF CHF) % OF CHF) % ------------ --- ------------ --- ------------ --- BY MARKETING AREA Switzerland 374 5 434 6 357 5 EU 4,121 57 4,257 57 4,316 56 Rest of Europe 443 6 536 7 360 5 ----- --- ----- --- ----- --- EUROPE 4,938 68 5,227 70 5,033 66 North America 1,570 22 1,650 22 1,864 24 Other areas 730 10 620 8 718 10 ----- --- ----- --- ----- --- TOTAL 7,238 100 7,497 100 7,615 100 ===== === ===== === ===== ===
1997 1998 1999 ------------------- ------------------- ------------------- (IN MILLIONS (IN MILLIONS (IN MILLIONS OF CHF) % OF CHF) % OF CHF) % ------------ --- ------------ --- ------------ --- BY DIVISION (1) Primary materials and fabricated products 3,368 46 3,642 48 3,573 47 Food flexible and tobacco packaging 2,137 30 2,147 29 2,190 29 Pharmaceutical and cosmetics packaging 1,268 18 1,269 17 1,299 17 Holding and others 9 0 10 0 12 0 ----- --- ----- --- ----- --- SUBTOTAL 6,782 94 7,068 94 7,074 93 Trading 1,158 16 1,025 14 1,064 14 ----- --- ----- --- ----- --- SUBTOTAL 7,940 110 8,093 108 8,138 107 (Intercompany sales) (702) (10) (596) (8) (523) (7) ----- --- ----- --- ----- --- TOTAL 7,238 100 7,497 100 7,615 100 ===== === ===== === ===== ===
(1) Intersegment sales for 1997-1999, which were based primarily on prevailing market prices, have been eliminated 39 32 DEPRECIATION AND AMORTIZATION
1997 1998 1999 ------------------- ------------------- ------------------- (IN MILLIONS (IN MILLIONS (IN MILLIONS OF CHF) % OF CHF) % OF CHF) % ------------ --- ------------ --- ------------ --- BY DIVISION Primary materials and fabricated products 158 46 172 46 134 46 Food flexible and tobacco packaging 105 30 107 29 84 29 Pharmaceutical and cosmetics packaging 83 24 91 25 73 25 Holding and others 1 0 1 0 1 0 --- --- --- --- --- --- TOTAL 347 100 371 100 292 100 === === === === === ===
RESEARCH AND DEVELOPMENT
1997 1998 1999 ------------------- ------------------- ------------------- (IN MILLIONS (IN MILLIONS (IN MILLIONS OF CHF) % OF CHF) % OF CHF) % ------------ --- ------------ --- ------------ --- BY DIVISION Primary materials and fabricated products 46 61 38 58 41 63 Food flexible and tobacco packaging 24 32 22 34 20 31 Pharmaceutical and cosmetics packaging 6 7 5 8 4 6 Holding and others 0 0 0 0 0 0 -- --- -- --- -- --- TOTAL 76 100 65 100 65 100 == === == === == ===
INVESTMENTS IN PROPERTY, PLANT AND EQUIPMENT
1997 1998 1999 ------------------- ------------------- ------------------- (IN MILLIONS (IN MILLIONS (IN MILLIONS OF CHF) % OF CHF) % OF CHF) % ------------ --- ------------ --- ------------ --- BY REGION Switzerland 62 12 54 11 50 11 EU 271 51 247 49 247 53 Rest of Europe 19 3 21 4 13 2 --- --- --- --- --- --- EUROPE 352 66 322 64 310 66 North America 122 23 130 26 113 24 Other areas 57 11 55 10 45 10 --- --- --- --- --- --- TOTAL 531 100 507 100 468 100 === === === === === ===
1997 1998 1999 ------------------- ------------------- ------------------- (IN MILLIONS (IN MILLIONS (IN MILLIONS OF CHF) % OF CHF) % OF CHF) % ------------ --- ------------ --- ------------ --- BY DIVISION Primary materials and fabricated products 300 57 222 44 233 50 Food flexible and tobacco packaging 110 21 157 31 125 27 Pharmaceutical and cosmetics packaging 119 22 128 25 109 23 Holding and others 2 0 0 0 1 0 --- --- --- --- --- --- TOTAL 531 100 507 100 468 100 === === === === === ===
40 33 PERSONNEL
1997 1998 1999 ------------------- ------------------- ------------------- (IN MILLIONS (IN MILLIONS (IN MILLIONS OF CHF) % OF CHF) % OF CHF) % ------------ --- ------------ --- ------------ --- BY REGION Switzerland 3,117 13 3,146 13 3,157 14 EU 12,427 53 12,199 51 11,801 51 Rest of Europe 983 4 1,002 5 970 4 ------ --- ------ --- ------ --- EUROPE 16,527 70 16,347 69 15,928 69 North America 6,173 26 6,552 28 6,276 27 Other areas 872 4 921 3 911 4 ------ --- ------ --- ------ --- TOTAL 23,572 100 23,820 100 23,115 100 ====== === ====== === ====== ===
1997 1998 1999 ------------------- ------------------- ------------------- (IN MILLIONS (IN MILLIONS (IN MILLIONS OF CHF) % OF CHF) % OF CHF) % ------------ --- ------------ --- ------------ --- BY DIVISION Primary materials and fabricated products 9,323 39 9,528 40 9,465 41 Food flexible and tobacco packaging 6,619 28 6,611 28 6,433 28 Pharmaceutical and cosmetics packaging 7,514 32 7,568 32 7,122 31 Holding and others 116 1 113 0 95 0 ------ --- ------ --- ------ --- TOTAL 23,572 100 23,820 100 23,115 100 ====== === ====== === ====== ===
NOTE 33 -- INFORMATION PER SECURITY
REGISTERED SHARES 1997 1998* 1999 --------- ---------- ---------- Number issued 4,215,058 6,286,126 6,424,345 Number ranking for a dividend 4,215,058 6,286,126 6,424,345 Nominal value CHF 125 100 100 RATIOS PER SECURITY Basic weighted average number of shares 6,153,102 6,260,541 6,319,959 Diluted weighted average number of shares 6,602,429 6,609,229 6,654,944 Basic earnings per share continuing operations CHF 51.8 51.4 69.6 Diluted earnings per share continuing operations CHF 51.4 51.3 68.7 Basic earnings per share CHF 75.3 84.7 107.3 Diluted earnings per share CHF 73.2 82.8 104.5 Total dividend (million CHF) -- 157 -- Share capital repayment (CHF 25 per share) 156 -- --
* Consistent with the decision of the Shareholders' Meeting of 24 March 1998, Alusuisse Lonza Group Ltd. has only one class of shares (registered shares), exclusively traded since 15 April 1998. The nominal value per share was reduced from CHF 125 to CHF 100 effective 24 June 1998. At 31 December 1997, the Group had 2,024,088 bearer shares outstanding which were converted to one class of shares as described above. 41 34 NOTE 34 - SIGNIFICANT SUBSIDIARIES AND AFFILIATES 31 DECEMBER 1999
% % Net sales Share capital Holding Holding EUROPEAN COUNTRIES Registered office (1) Activities Currency (1) in million in 000 direct indirect - ------------------ --------------------- ---------- ------------ ---------- ------------- ------- -------- Alusuisse Schweizerische Aluminium AG Sierre, CH *-o CHF 513 60,000 100 Alusuisse Trading AG Zurich, CH o CHF 2,223 5,000 100 Lawson Mardon Neher AG Kreuzlingen, CH *-o CHF 164 15,000 100 Alusuisse Decin sro Decin, CZ -o CZK 2,809 1,097,800 62 Alusuisse Singen GmbH Singen/Hohentwiel, DE -o DEM 1,007 170,000 100 Lawson Mardon Singen GmbH Singen/Hohentwiel, DE -o DEM 507 50,000 100 Alusuisse Martinswerk GmbH Bergheim/Erft, DE -o DEM 202 55,000 100 Alusuisse France SA St-Florentin, FR -o FRF 550 100,000 100 Boxal France SA Beaurepaire, FR -o FRF 308 60,000 100 Lawson Mardon Morin SA Sarrebourg, FR -o FRF 428 11,280 100 Lawson Mardon Packaging UK Ltd. Bristol, GB - GBP 90 1,335 100 Lawson Mardon Star Ltd. Bristol, GB - GBP 142 17,000 100 Isal - Icelandic Aluminium Company Ltd. Hafnarfjordur, IS - USD 239 4,395 100 Aluchemie - Aluminium & Chemie Rotterdam BV Rotterdam, NL - NLG 279 33,000 72 Boxal Netherlands BV Veenendaal, NL -o NLG 105 13,000 100 Lawson Mardon Picopac BV Zutphen, NL -o NLG 109 100 100 OTHER COUNTRIES Austraswiss - Swiss Aluminium Australia Ltd. North Sydney, NSW, AU o+ AUD 375 146,000 100 Lawson Mardon USA Inc Millville, NJ, US -o USD 272 1 100 Wheaton USA Inc Millville, NJ, US -o USD 423 1 100 HOLDING AND FINANCING COMPANIES Alusuisse-Lonza Capital Ltd. St Helier, Jersey, GB + CHF 250 100 Alusuisse-Lonza Finance Ltd. St Helier, Jersey, GB + USD 50 100 Alusuisse-Lonza Europe BV Breda, NL + NLG 550 73 27 A-L Holding USA LLC Wilmington, DE, US + USD 0.1 100 ALA Nevada Inc Sparks, NV, US + USD 3 100
_____________ * Research/Applications - - Production o Sales + Services/Financing (1) Abbreviations of countries and currencies in accordance with ISO standards. 42 35 NOTE 35 - RECONCILIATION SIGNIFICANT DIFFERENCES BETWEEN INTERNATIONAL ACCOUNTING STANDARDS AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES AND CANADA The Group's consolidated financial statements have been prepared in accordance with International Accounting Standards (IAS) of the International Accounting Standards Committee (IASC), which differ, in certain significant respects from generally accepted accounting principles in the United States (U.S. GAAP) and Canada (Canadian GAAP). The significant differences that affect the consolidated net income and shareholders' equity are set out below. Reconciliation of net income to U.S. GAAP
YEARS ENDED DECEMBER 31, ----------------------- Note 1997 1998 1999 ---- ----- ----- ----- In millions of CHF Net income as reported in the consolidated income statements in accordance with IAS 463 530 678 Adjustments required to conform with U.S. GAAP: Goodwill amortization (a) (31) (28) (24) Capitalized interest (b) 19 13 9 Inventories (c) (4) 7 2 Debt issue costs (d) (1) (1) (1) Fixed assets (e) 14 3 (82) Pensions (f) 13 25 (7) Stock ownership plan (g) (6) (8) - Derivatives (h) (26) 1 (244) Accruals (i) 11 (66) 10 Restructuring provisions (j) 10 (1) (25) Other (5) 1 (8) Tax effect of U.S. GAAP adjustments (k) (19) (21) 105 ----- ----- ----- Net income in accordance with U.S. GAAP 438 455 413 ===== ===== ===== Continuing operations 305 303 152 Discontinued operations 133 152 261 Basic earnings per share in accordance with U.S. GAAP: CHF CHF CHF Continuing operations 49.57 48.38 24.05 Discontinued operations 21.62 24.27 41.30 ----- ----- ----- Net income (m) 71.19 72.65 65.35 ===== ===== ===== Diluted earnings per share in accordance with U.S. GAAP: CHF CHF CHF Continuing operations 49.23 48.41 22.84 Discontinued operations 20.14 22.99 39.22 ----- ----- ----- Net income (m) 69.37 71.40 62.06 ===== ===== =====
43 36 Reconciliation of net income to Canadian GAAP
YEARS ENDED DECEMBER 31, ----------------------- Note 1997 1998 1999 ---- ----- ----- ----- In millions of CHF Net income as reported in the consolidated income statements in accordance with IAS 463 530 678 Adjustments required to conform with Canadian GAAP: Goodwill amortization (a) (31) (28) (24) Capitalized interest (b) 19 13 9 Inventories (c) (2) 8 (10) Debt issue costs (d) (1) (1) (1) Fixed assets (e) 14 3 7 Pensions (f) 13 25 (7) Derivatives (h) (26) 1 5 Accruals (i) 11 (66) 10 Restructuring provisions (j) 10 (1) (18) Other (5) 1 (8) Tax effect of U.S. GAAP adjustments (k) (19) (21) 18 ----- ----- ====== Net income in accordance with Canadian GAAP 446 464 659 ===== ===== ====== Continuing operations 312 311 380 Discontinued operations 134 153 279 Basic earnings per share in accordance with Canadian GAAP: CHF CHF CHF Continuing operations 50.71 49.66 60.10 Discontinued operations 21.78 24.43 44.18 ----- ----- ====== Net income (m) 72.49 74.09 104.28 ===== ===== ====== Filly diluted earnings per share in accordance with Canadian GAAP: CHF CHF CHF Continuing operations 50.29 49.62 57.07 Discontinued operations 20.30 23.14 41.95 ----- ----- ------ Net income (m) 70.59 72.76 99.02 ===== ===== ======
44 37 Reconciliation of shareholders' equity to U.S. GAAP
December 31, ---------------------- Note 1997 1998 1999 ---- ----- ----- ----- In millions of CHF Shareholders' equity as reported in the consolidated balance sheets in accordance with IAS 2,765 3,101 1,358 Adjustments required to conform with U.S. GAAP: Goodwill: Cost (a) 561 548 582 Amortization (a) (306) (334) (368) Capitalized interest (b) 68 80 24 Inventories (c) (6) 2 1 Debt issue costs (d) 4 3 2 Fixed assets (e) 23 26 (71) Pensions (f) 82 98 85 Derivatives (h) (26) (24) (264) Accruals (i) 94 28 9 Restructuring provisions (j) 10 8 -- Other 2 6 (14) Tax effect of U.S. GAAP adjustments (k) 9 (5) 67 ----- ----- ----- Shareholders' equity in accordance with U.S. GAAP 3,280 3,537 1,411 ===== ===== =====
Reconciliation of shareholders' equity to Canadian GAAP
December 31, ---------------------- Note 1997 1998 1999 ---- ----- ----- ----- In millions of CHF Shareholders' equity as reported in the consolidated balance sheets in accordance with IAS 2,765 3,101 1,358 Adjustments required to conform with Canadian GAAP: Goodwill: Cost (a) 561 548 582 Amortization (a) (306) (334) (368) Capitalized interest (b) 68 80 24 Inventories (c) (4) 5 (1) Debt issue costs (d) 4 3 2 Fixed assets (e) 23 26 (12) Pensions (f) 82 118 85 Derivatives (h) (26) (24) (15) Accruals (i) 94 28 9 Restructuring provisions (j) 10 8 6 Other 2 6 (14) Tax effect of U.S. GAAP adjustments (k) 9 (5) (14) ----- ----- ----- Shareholders' equity in accordance with Canadian GAAP 3,282 3,560 1,642 ===== ===== =====
45 38 (a) Goodwill and business combinations In accordance with IAS 22 (revised 1993), the difference between the purchase price and the aggregate fair value of tangible and identifiable intangible assets and liabilities acquired in a business combination is capitalized as goodwill and amortized over its useful life, not to exceed 20 years. Prior to January 1, 1995, in accordance with IAS, goodwill was charged by the Group directly to shareholders' equity. For U.S. and Canadian GAAP purposes, goodwill acquired prior to January 1, 1995 is recorded as an asset and is being amortized over its estimated useful life of 15 years. IAS 22 requires a review of the recoverability of unamortized goodwill at each balance sheet date and a write-off to the extent it no longer represents future economic benefits. Under U.S. GAAP, if a long-lived asset being tested for recoverability was acquired in a business combination, the goodwill that arose in that transaction shall be included as part of the asset grouping in determining recoverability. In instances where goodwill is identified with assets that are subject to impairment loss under SFAS No. 121, the carrying amount of the identified goodwill must be eliminated before making any reduction of the carrying amounts of impaired long-lived assets and identifiable intangibles. Under U.S. GAAP, the Group has chosen to measure impairments of "enterprise" goodwill based on an analysis of estimated future discounted operating cash flows of the underlying businesses. Under Canadian GAAP, goodwill must be written down to the extent that there has been a permanent impairment in the value of the unamortized portion of goodwill. For Canadian GAAP purposes, the Group has chosen to measure any impairments of goodwill based on an analysis of estimated future discounted operating cash flows of the underlying businesses. (b) Capitalized interest Under IAS, the capitalization of interest on major capital projects, which extend useful lives or increase capacity, is not required. In accordance with U.S. GAAP, interest costs incurred during the construction period (i.e. the period of time necessary to bring a constructed fixed asset to the condition and location necessary for its intended use) must be capitalized as part of the cost of the fixed asset. Under Canadian GAAP, the capitalization of interest on major capital projects is permitted but not required. The Group has chosen to capitalize interest for Canadian GAAP purposes. (c) Inventories Costs of certain raw materials and consumables are recorded at replacement cost according to current market prices. Under U.S. and Canadian GAAP, inventories are valued at the lower of cost and market value, with market value defined as the lower of current replacement cost or net realizable value less a normal profit margin. For IAS reporting purposes, the Group values inventory at certain US subsidiaries using the average cost method. Under U.S. GAAP, these inventories are valued using the LIFO method, consistent with the stand-alone reporting of such subsidiaries. Under Canadian GAAP, the Group has chosen to value the inventories at these U.S. subsidiaries using the average cost method. 46 39 (d) Debt issuance costs Under IAS, the Group expensed debt issuance costs as incurred. Under U.S. and Canadian GAAP, these costs are required to be capitalized and amortized over the life of the related debt issue. (e) Fixed assets Prior to January 1, 2000, in accordance with IAS, cost and expenses for future maintenance and repairs of long-lived assets may be provided on a basis of reasonable estimates. Under U.S. and Canadian GAAP, such costs may only be recognized if a liability has been incurred. Additionally, costs and expenses are capitalized to the extent (i) it is probable that future economic benefits will be realized and/or (ii) the estimated useful life of a long-lived asset is extended. Under IAS, the Group changed its estimate of the useful lives of certain fixed assets effective January 1, 1999 (see note 24 for impact on continuing operations). Under U.S. GAAP, this change may only be reflected effective July 1, 1999 with no restatement of previously reported interim information. Accordingly for US GAAP purposes, this change in estimated useful lives increases depreciation expense by approximately CHF 89 million, increases the valuation of inventories by approximately CHF 12 million, and decreases deferred income tax liabilities by approximately CHF 17 million. This change in estimate decreased U.S. GAAP net income from continuing operations and basic earnings per share of continuing operations for the year ended December 31, 1999 by approximately CHF 42 million and CHF 6.65, respectively. (f) Pension and postretirement benefits Under IAS, pension costs and similar obligations are accounted for in accordance with IAS No. 19 Retirement Benefit Costs. Under U.S. GAAP, pension costs and similar obligations are accounted for in accordance with SFAS No. 87 Employers' Accounting for Pensions which was adopted by the Group effective January 1, 1989 for all operations except those in the United States where SFAS No. 87 was adopted effective January 1, 1987. For Canadian GAAP purposes, the Group has chosen to early adopt on a retroactive restatement basis the provisions of Section 3461, "Employee Future Benefits", of the Handbook of the Canadian Institute of Chartered Accountants (C.I.C.A). As permitted by Section 3461, the Group has applied the provisions of the Section in a manner that produces the same recognized and unrecognized amounts for all of its benefit plans as determined under U.S. GAAP. Upon adoption of IAS 19, the Group ceased deferring actuarial and net asset gains and losses. Deferred losses were charged to expense at that date. Under U.S. and Canadian GAAP, actuarial and net asset gains and losses are deferred and amortized in future periods, when gains and losses exceed prescribed limits. In accordance with IAS 19, gains and losses are recognized without regard to prescribed limits. In addition, IAS 19 stipulates the use of long-term assumptions, while U.S. and Canadian GAAP require assumptions to reflect current market and economic conditions. Under U.S. GAAP, a minimum pension liability is recognized as a separate component of equity when the unfunded accumulated benefit obligation exceeds the accrual. Under IAS and Canadian GAAP, recognition of a minimum pension liability is not required. 47 40 (g) Stock ownership plan Effective in 1995, the Board of Directors approved the Executive Stock Ownership Plan. Under the Plan, officers and key employees of the Group receive rights to purchase shares of the Group at prices lower than market prices prevailing at the time the rights are granted. The Board of Directors has absolute discretion to determine whether any purchase rights will be granted in any one year, to specify the performance goals to be achieved in the year and to select the officers and key employees who will be granted such rights. In October 1999, the Group terminated its stock ownership plan in connection with the proposed three-way combination agreement with Alcan Aluminium Limited and Pechiney SA. Under IAS, compensation expense was not recognized for rights granted under the Plan. Under U.S. GAAP, the Group has chosen to utilize the provisions of APB Opinion 25 for measuring compensation expense associated with the Plan. APB 25 requires that compensation expense be recognized, for the difference between the market value and share purchase price. For Canadian GAAP purposes, it is not necessary to recognize the compensation element for such plans. (h) Derivatives The Group enters into various derivative financial instruments consistent with its strategy to reduce the Group's economic risk. Under IAS, these strategies have been treated as hedges for accounting purposes. Under U.S. and Canadian GAAP, certain of these strategies do not qualify for hedge accounting and accordingly, the related derivative instruments are marked to market with the associated unrealized gains or losses reflected in income immediately. In addition, certain strategies quality for hedge accounting under Canadian GAAP but not under U.S. GAAP. In order to manage the volatility of LME pricing for aluminum, the Group enters into various derivative transactions pursuant to the Group's policies in areas such as counterparty exposure and hedging practices. The objective of such strategies is to preserve the economic performance of the Group's primary metal operations by stabilizing the associated revenue stream over a number of years. This objective is normally set on a multi-year basis and is achieved by securing guaranteed selling prices well in excess of production costs for these commodities or guaranteed purchase prices within pre-established price bands. These strategies are reviewed by management on a continuous basis. The key element of these strategies is to secure the profitability of the primary metal operations by obtaining a guaranteed minimum selling price or maximum purchase price, in exchange for which the Group foregoes the right to participate in price increases in excess of or price decreases lower than the pre-established bands. The Group utilizes a combination of LME futures and options to implement these strategies. Under IAS, these strategies have been treated as hedges, and the gain or loss on these instruments has been deferred to match the timing of the Group's production and sale of the underlying commodities. Under U.S. and Canadian GAAP, some of these strategies do not qualify for hedge accounting and have been marked to market, thus giving rise to unrealized gains and losses that are reflected in income immediately. There is no certainty that any of these mark to market adjustments will result in realized gains and losses. 48 41 (i) Accruals Under U.S. and Canadian GAAP, costs and expenses are accrued and charged to income only if it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. If a loss is probable and the reasonable estimate of the loss is a range and no amount within the range appears to be a better estimate than any other amount, the minimum amount in the range should be accrued. If an amount or a range of amounts cannot be reasonably estimated, no accrual shall be made. Furthermore, general or unspecified risks or possible losses do not meet the conditions for an accrual under U.S. and Canadian GAAP. Under IAS, accruals can be made on the basis of reasonable estimates of expected costs and expenses. Additionally, under IAS, if a loss is probable and the reasonable estimate of the loss is a range and no amount within the range appears to be a better estimate than any other amount, the mid-point in the range should be accrued. (j) Restructuring provisions The Group has recorded restructuring and similar provisions for IAS purposes in the period management committed itself to a plan, when it was probable that a liability had been incurred and the amount was estimable. These criteria differ from those specified by U.S. and Canadian GAAP, which are more prescriptive than IAS in terms of the timing of recognizing restructuring provisions and exit costs, as well as the types of costs that may be accrued. (k) Tax effect of U.S. GAAP and Canadian GAAP adjustments U.S. GAAP requires recognition of deferred tax assets and liabilities for temporary differences using enacted tax rates in effect at year-end in accordance with SFAS No. 109 Accounting for Income Taxes. Prior to the adoption of IAS 12 (revised), as of January 1, 1996, the Group applied the provisions of IAS 12 (original). The effect of the January 1, 1998 adoption of IAS 12 (revised) eliminated the netting of deferred tax assets and liabilities. For Canadian GAAP purposes, the Group has chosen to early adopt on a retroactive restatement basis the provisions of C.I.C.A. Handbook Section 3465, Income Taxes, which, in the Group's circumstances, results in no significant differences from U.S. GAAP on accounting for income taxes. U.S. and Canadian GAAP require deferred taxes to be recognized for all differences between the bases of assets and liabilities for tax and financial reporting purposes. Additionally, under U.S. and Canadian GAAP, net operating loss carry forwards ("NOLs") and other credits that are available to reduce futures taxes are recognized as deferred tax assets. Such amounts are reduced by a valuation allowance to the extent that it is more likely than not that the tax benefit related to the utilization of such NOLs or credits will not be realized. Under IAS, deferred tax assets are only recognized when it is probable that they will be realized. In addition, under U.S. and Canadian GAAP, NOLs and other credits existing at the date of a purchased business combination that are first recognized subsequent to the acquisition date (by reduction of the valuation allowance) are reported in the following manner: o First, the positive goodwill related to the acquisition is reduced to zero; o Second, other non-current intangible assets related to the acquisition are reduced to zero; and o Third, any remaining benefit is reported as a reduction of income tax expense. 49 42 The deferred tax adjustment included in the reconciliation of IAS to U.S. and Canadian GAAP includes the income tax effects of the U.S. and Canadian GAAP adjustments where appropriate. (m) Earnings per share Under IAS and U.S. GAAP, the presentation of basic and diluted earnings per share (EPS) is required. Basic EPS is calculated by dividing earnings available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted EPS takes into account the dilutive effect of options and convertible securities using the treasury stock method. Under Canadian GAAP, basic EPS is calculated in the same manner as IAS and U.S. GAAP. Fully diluted EPS is computed taking into account the dilutive effect of options and convertible securities using the "if converted" method for convertible securities and imputing earnings on the assumed exercise of options, warrants or other rights. ADDITIONAL U.S. AND CANADIAN GAAP INFORMATION Total cost method As allowed under IAS, the Group has presented its statement of operations under the "total cost" method. Under U.S. and Canadian GAAP, the statement of operations would be presented in a cost of sales format. Such difference in presentation has no effect on net income. As allowed under IAS, changes in the labor and overhead portions of finished goods are added to sales if inventory increases and subtracted if inventory decreases in order to show pure period costs without distortions for changes in inventory. Under U.S. and Canadian GAAP, this presentation is not permitted, and such items would be reflected in cost of sales. Such difference in presentation has no effect on net income. Income statement Certain items in the consolidated income statements would be classified differently under U.S. and Canadian GAAP. These items include the reversal of certain provisions and allowances for doubtful accounts that would generally be recorded as reductions to the original expense line item under U.S. and Canadian GAAP rather than in other income, and the interest component of net periodic pension cost would be recorded within pension expense under U.S. and Canadian GAAP rather than interest expense. As allowed under IAS, amortization of goodwill is not included as a component of operating income. Under U.S. GAAP amortization of goodwill is included in operating income. If the Company had applied U.S. GAAP for presentation and measurement purposes, operating income would have been decreased by CHF 40 million, CHF 43 million, and CHF 45 million, in 1999, 1998 and 1997, respectively related to amortization of goodwill. Comprehensive Income Beginning in 1998, U.S. GAAP requires the disclosure of comprehensive income which, for the Group, is net income increased or decreased for translation differences as presented in the 50 43 Group's statement of shareholders' equity. The following presents the Group's comprehensive income based upon IAS for each of the years ended December 31, 1999, 1998 and 1997:
YEARS ENDED DECEMBER 31, --------------------- 1997 1998 1999 ---- ---- ---- (In millions of CHF) Net income in accordance with IAS 463 530 678 Other comprehensive income: Currency translation adjustment (81) (81) 40 --- --- --- Comprehensive income 382 449 718 === === ===
Spin-off of Chemicals business Under Canadian GAAP, liabilities that will be assumed by a purchaser or discharged from the proceeds of sale may not be offset against assets held for disposal. Accordingly, the liabilities of discontinued operations that have been offset against the assets of discontinued operations and classified as a part of net assets of discontinued operations in the consolidated balance sheet under IAS would be shown on a broad basis, rather than net. Such difference in presentation has no impact on consolidated shareholders' equity. Discontinued operations As described in Note 28 (b), certain Lawson Mardon businesses that were acquired during 1994 have been classified as discontinued operations under IAS. Under U.S. and Canadian GAAP, the requirements to be classified as discontinued operations are more prescriptive. Accordingly, the results of operations for these disposals would be classified as part of income from continuing operations. Had such businesses been classified as continuing operations at December 31, 1997, the Group's total assets and liabilities, as prepared in accordance with IAS, would have increased by approximately CHF 225 million and the net assets of discontinued operations would be decreased by the same amount. Net sales for the years ended December 31, 1998 and 1997 would have increased by approximately CHF 110 million and CHF 440 million, respectively. Deferred taxes Under IAS, the Group's deferred tax assets and liabilities are classified as long-term. Under U.S. and Canadian GAAP, the Group's deferred tax assets and liabilities would be segregated between current and long-term. Use of estimates The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. 51 44 Proportional consolidation Under IAS, the Group's 70% interest in a mining joint venture is reported using the proportionate consolidation method. This method takes into account individual assets, liabilities, income and expenses line-by-line pro rata to the participation in the equity. Under U.S. and Canadian GAAP, this joint venture would be fully consolidated, with a corresponding balance reflected for the minority interest, as the Group has effective operating control of the joint venture. Under the full consolidation method, the Group's consolidated financial statements would include 100 percent of the assets and liabilities of the joint venture and reflect the related minority ownership interest. The effect of fully consolidating the joint venture would be to increase total assets by approximately CHF 198 million CHF 185 million and CHF 149 million at December 31, 1999, 1998 and 1997, respectively. Operating expenses would be increased by approximately CHF 95 million, CHF 97 million, and CHF 96 million for the years ended December 31, 1999, 1998 and 1997, respectively, principally representing the minority interest's share of the joint venture's operating expenses. These adjustments would have no impact on the Group's net income for the respective periods. OTHER U.S. GAAP STATEMENTS ISSUED BUT NOT ADOPTED: In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 (SFAS No. 133), "Accounting for Derivative Instruments and Hedging Activities". This Statement establishes accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. It requires that an entity recognizes all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. This Statement, as amended by SFAS No. 137, is effective for all fiscal years beginning after June 15, 2000. Management has not determined the effect of the adoption of SFAS No. 133. The Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101), on December 3, 1999. SAB 101 provides additional guidance on the application of existing generally accepted accounting principles to revenue recognition in financial statements. As amended, SAB 101 is required to be adopted no later than the fourth quarter of fiscal years beginning after December 15, 1999. The Group does not expect the adoption of SAB 101 to have a material effect on the Group's consolidated financial position or results from operations. The Financial Accounting Standard Board issued Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation" (FIN 44), in March 2000. This interpretation clarifies the application of "Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees", with respect to certain issues in accounting for employee stock compensation and is generally effective as of July 1, 2000. The Group does not expect the adoption of FIN 44 to have a material effect on the Group's consolidated financial position or results from operations. 52 EX-99.2 6 m08474ex99-2.txt UNAUDITED INTERIM FINANCIAL STATEMENTS OF ALGROUP 1 EXHIBIT NO. 99.2: ALGROUP'S FINANCIAL RESULTS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2000 FINANCIAL RESULTS FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2000 Interim consolidated balance sheets at 31 December 1999 and 30 June 2000
31 DECEMBER 30 JUNE 1999 2000 ----------- ------- (unaudited) (In millions of CHF) Assets Fixed assets Property, plant and equipment 8,015 8,065 Accumulated depreciation (5,121) (5,185) Intangible assets and goodwill 282 291 Other noncurrent assets and deferred items 118 104 Investments in affiliates 34 15 Long-term loans and advances 7 6 Total fixed assets 3,335 3,296 Current assets Inventories, net 1,226 1,276 Trade receivables, net 1,087 1,214 Other receivables, prepaid expenses and accrued income 339 522 Short-term advances 74 27 Cash and cash equivalents 611 501 Total current assets 3,337 3,540 Total assets 6,672 6,836
See accompanying notes to the interim consolidated financial statements. 53 2 Interim consolidated balance sheets at 31 December 1999 and 30 June 2000
31 DECEMBER 30 JUNE 1999 2000 ----------- ------- (unaudited) (In millions of CHF) Liabilities and shareholders' equity Share capital 642 679 Consolidated reserves 716 1,466 Total shareholders' equity 1,358 2,145 Minority interests 40 52 Liabilities Long-term provisions 641 611 Long-term debt: Bonds 766 460 Due to banks and other financial institutions 322 372 ----- ----- Total long-term liabilities 1,729 1,443 ===== ===== Current liabilities: Trade payables 751 720 Other liabilities and deferred items 1,089 1,022 Short-term debt: Due to banks and other financial institutions 1,705 1,454 ----- ----- Total current liabilities 3,545 3,196 ----- ----- Total liabilities 5,274 4,639 ----- ----- Total liabilities and shareholders' equity 6,672 6,836 ===== =====
See accompanying notes to the interim consolidated financial statements. 54 3 Interim consolidated income statements
SIX MONTHS SIX MONTHS ENDED ENDED 30 JUNE 30 JUNE 1999 2000 ---------- ---------- (UNAUDITED) (In millions of CHF) Net sales 3,691 4,361 Changes in inventory of work-in-progress and finished goods 23 11 Income from production 3,714 4,372 Material costs (1,827) (2,233) Energy costs (137) (147) Personnel expenses (883) (909) Other operating income and expenses, net (390) (513) Depreciation and amortization (143) (161) Operating income 334 409 Amortization of goodwill (8) (10) Earnings from continuing operations before interest, taxes and minority interest 326 399 Interest income and exchange gains 44 75 Interest expenses and exchange losses (118) (151) Other income, net 1 1 Income from continuing operations before income taxes and minority interest 253 324 Income taxes (50) (89) Income attributable to minorities (4) (5) Income from continuing operations 199 230 Net income from discontinuing operations 139 0 Net income 338 230 Basic earnings per share continuing operations 31.65 -- Diluted earnings per share continuing operations 31.41 -- Basic earnings per share group 53.76 34.76 Diluted earnings per share group 52.43 34.60
See accompanying notes to the interim consolidated financial statements. 55 4 Interim consolidated cash flow statements
SIX MONTHS SIX MONTHS ENDED ENDED 30 JUNE 30 JUNE 1999 2000 ---------- ---------- (UNAUDITED) (In millions of CHF) Income from continuing operations 199 230 Depreciation on property, plant and equipment 139 158 Amortization of intangibles 4 3 Amortization of goodwill 8 10 Increase (decrease) in long-term provisions 18 (15) (Income) from application of the equity method 2 0 (Increase) in net working capital (259) (350) (Increase) in other prepaids and accruals (27) (126) Net cash provided by (used in) continuing operations 84 (90) Net cash provided by discontinuing operations 180 0 Total cash provided by (used in) operating activities 264 (90) Purchase of property, plant and equipment (173) (185) Purchase of intangibles (1) (1) Goodwill from purchase of operations (11) (1) Sale of investments in affiliates, net 7 7 Purchase of consolidated companies (less cash acquired) 0 (23) Sale of consolidated companies (less cash disposed) 2 0 Sale of property, plant and equipment 6 14 Sale of other assets 0 2 (Increase) decrease in loans and advances (18) 56 Net cash used in investing activities continuing (188) (131) Net cash used in investing activities discontinuing (73) 0 Total cash used in investing activities (261) (131) Increase of capital (in 2000: capital repayment from Lonza) 1 277 Increase (decrease) in debts 241 (162) Dividends paid (157) 0 Contribution from (distribution to) minority interests (3) 3 Net cash provided by financing activities continuing 82 118 Net cash provided by financing activities discontinuing 3 0 Total cash provided by financing activities 85 118 Translation adjustments (3) (7) Net increase (decrease) in cash 85 (110) Cash and cash equivalents at 1 January 360 611 Cash and cash equivalents at 30 June 445 501
See accompanying notes to the interim consolidated financial statements. 56 5 Notes to the unaudited interim consolidated financial statements 1 Accounting principles and basis of presentation The consolidated financial statements are reported in Swiss francs (CHF) and are based on the accounts of the individual Subsidiaries of algroup at 30 June, which have been drawn up according to uniform Group accounting principles consistent with those adopted by algroup in its consolidated financial statements for the year ended 31 December 1999 and include all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for fair presentation of the results of the interim periods. The consolidated accounts are rendered in conformity with International Accounting Standards ("IAS"), published by the International Accounting Standards Committee ("IASC"). During 1999, the Group adopted estimated useful lives for its operating assets which more accurately reflect industry practice. The effect of this change reduced depreciation expense for the six months ended 30 June 1999 by CHF 58 million. The effect of this change on net income of continuing operations for the six months ended 30 June 1999 was an increase of CHF 42 million. For comparative purposes, certain prior period amounts were reclassified to conform with the current period's presentation. 2 Discontinuing operations The discontinuing operations are comprised of the following: At the algroup extraordinary shareholders' meeting on 18 October 1999 the shareholders approved the demerger of the chemical business (composed of two divisions of the algroup Group, fine chemicals and specialties and intermediates and additives) and the energy business. The above mentioned activities are treated as discontinuing operations. The net assets of the chemical business were deducted from the algroup Group's equity on 1 November 1999. On 1 November 1999, the shares of Lonza Group were listed on the SWX Swiss Exchange and accordingly the discontinuing operations were included in algroup's consolidated financial statements for the six-month period ended 30 June 1999. In order to reflect the debt-free status effective as of 1 July 1999, as stated in the Separation and Demerger Agreement and related to the above mentioned activities, all the debt and accordingly the interest positions for the six months ended 30 June 1999 are shown under continuing operations. The algroup financial statements reflect the net income of discontinuing operations as a separate item and have been classified in the consolidated income statement as net income from discontinuing operations. 3 Alcan Exchange Offer Following discussions with the European commission's Merger Task Force Alcan, Pechiney and algroup decided on 14 March 2000 to withdraw the Alcan-Pechiney application from the European Commission process and to terminate the Three-Way Combination Agreement as it related to Pechiney. The companies concluded that the divestments which would ultimately be required to meet the objections of the European Commission would seriously undermine the strategic viability of the Three-way Combined Company's operations. On 1 June 2000, Alcan and algroup entered into the Amending Agreement. In the Amending Agreement the parties agreed that the consideration for the Exchange Offer shall be amended 57 6 to 17.1 Alcan Common Shares for one algroup Share. If more than 67% of algroup Shares are tendered in the Exchange Offer, algroup has agreed to pay a dividend of CHF 135 per algroup Share and make a capital repayment equal to CHF 90 per algroup Share to the shareholders of record on the close of business on the second business day prior to the exchange of shares under the Exchange Offer. If more than 67% of the algroup Shares are not tendered the capital repayment will be made on 24 October 2000. Alcan is expected to launch a public Exchange Offer to algroup shareholders for all registered shares in algroup. The tendering of the Exchange Offer is scheduled for the end of August and it is expected that the transaction will be concluded by the end of October 2000. The Exchange Offer is regarded as having succeeded if more than 67% of algroup Shares are exchanged for Alcan Shares. 4 Changes in shareholders' equity
30 JUNE 1999 30 JUNE 2000 ------------ ------------ (In millions of CHF) BEGINNING OF PERIOD 3,101 1,358 Issuance of Shares upon bond conversion 0 312 Net income 338 230 Dividend (157) 0 Translation differences 107 (32) Capital Repayment from Lonza 0 277 ----- ----- END OF PERIOD 3,389 2,145 ===== =====
In the six months ended 30 June 2000 conversion rights were exercised on 365,917 registered shares with a par value of approximately CHF 36.5 million, of these a total of 350 registered shares through the conversion rights related to the 2 1/4% 1995-2002 convertible bond issue, and 365,567 registered shares through the conversion rights related to the 2% 1996-2001 convertible bond issue. Due to the termination of the Three-way Combination Agreement with Alcan and Pechiney, U.S.$ 167 million was paid from Lonza Group to algroup in the six months ended 30 June 2000 in accordance with Combination Agreement. 5 Exchange rates
INCOME STATEMENT BALANCE SHEET HALF YEAR RATE CHF AVERAGE RATE CHF ----------------------- --------------------- 31.12.99 30.06.00 1999 2000 -------- -------- ---- ---- USA Dollar 1 1.59 1.62 1.47 1.65 Canada Dollar 1 1.09 1.09 0.99 1.12 Australia Dollar 1 1.04 0.97 0.95 1.00 Great Britain Pound Sterling 1 2.58 2.45 2.38 2.59 Germany Mark 100 82.02 79.70 81.80 81.06 France Franc 100 24.45 23.76 24.39 24.17 Italy Lira 100 0.082 0.080 0.083 0.081
58 7 6. Segment data
30 JUNE 1999 30 JUNE 2000 ------------------------ ------------------------ SALES BY DIVISION IN MILLIONS OF CHF % IN MILLIONS OF CHF % - ----------------- ------------------ ---- ------------------ --- Primary materials and fabricated products 1 512 41 1 850 42 Packaging 1 689 46 1 872 43 Holding and others 4 0 3 0 ------ --- ----- --- SUBTOTAL 3 205 87 3 725 85 Trading 486 13 636 15 ----- --- ----- --- TOTAL 3 691 100 4 361 100 ===== === ===== ===
30 JUNE 1999 30 JUNE 2000 ---------------------- ------------------------ OPERATING INCOME BY DIVISION IN MILLIONS OF CHF % IN MILLIONS OF CHF % - ---------------------------- ------------------ ---- ------------------ ---- Primary materials and fabricated products 189 57 239 58 Packaging 165 49 167 41 Holding and others (20) (6) 3 1 --- --- --- --- SUBTOTAL 334 100 409 100 Trading 0 0 0 0 --- --- --- --- TOTAL 334 100 409 100 === === === ===
30 JUNE 1999 30 JUNE 2000 ---------------------- ------------------------ DEPRECIATION & AMORTISATION BY IN MILLIONS OF CHF % IN MILLIONS OF CHF % DIVISION ------------------ ---- ------------------ ----- - ------------------------------ Primary materials and fabricated products 66 46 72 45 Packaging 76 53 89 55 Holding and others 1 1 0 0 --- --- --- --- TOTAL 143 100 161 100 === === === ===
59 8
30 JUNE 1999 30 JUNE 2000 --------------------------- -------------------------- INVESTMENTS IN PROPERTY, PLANT BY DIVISION IN MILLIONS OF CHF % IN MILLIONS OF CHF % ------------------- ---- ------------------ ----- Primary materials and fabricated products 90 52 81 44 Packaging 82 47 104 56 Holding and others 1 1 0 0 --- --- --- --- TOTAL 173 100 185 100 === === === ===
PERSONNEL BY PRODUCTION AREA 30 JUNE 1999 % 30 JUNE 2000 % ------------ ---- ------------ ---- Switzerland 3,190 13 3,203 14 EU 12,235 51 12,009 52 Rest of Europe 997 5 972 4 ------ --- ------ --- Europe 16,422 69 16,184 70 North America 6,460 27 5,920 26 Other areas 938 4 954 4 ------ --- ------ --- TOTAL 23,820 100 23,058 100 ====== === ====== ===
PERSONNEL BY DIVISION 30 JUNE 1999 % 30 JUNE 2000 % ------------ ---- ------------ ---- Primary materials and fabricated products 9,698 41 9,828 43 Packaging 13,974 59 13,101 57 Holding and others 148 - 129 - ------ --- ----- --- TOTAL 23,820 100 23,058 100 ====== === ====== ===
60 9 7. Reconciliation Significant Differences Between International Accounting Standards and Generally Accepted Accounting Principles in the United States and Canada. The algroup unaudited interim consolidated financial statements have been prepared in accordance with International Accounting Standards (IAS) of the International Accounting Standards Committee (IASC) which differ in certain significant respects from generally accepted accounting principles in the United States (U.S. GAAP) and Canada (Canadian GAAP). The significant differences that affect the consolidated net income and shareholders' equity are set out below. U.S. and Canadian GAAP have been applied on a basis consistent with that of the consolidated financial statements for the year ended December 31, 1999. Reconciliation of net income to U.S. GAAP
SIX MONTHS ENDED JUNE 30, -------------- 1999 2000 ----- ----- (In millions of CHF) unaudited Net income as reported in the unaudited interim consolidated income statements in accordance with IAS 338 230 Adjustments required to conform with U.S. GAAP: Goodwill amortization (12) (11) Capitalized interest 6 -- Inventories 8 (2) Debt issue costs (1) -- Fixed assets (82) 3 Pensions 14 3 Derivatives (94) 81 Accruals 13 4 Restructuring provisions (14) (1) Other 2 (3) Tax effect of U.S. GAAP adjustments 33 (35) ----- ----- Net income in accordance with U.S. GAAP 211 269 ===== ===== Continuing operations 84 269 Discontinued operations 127 -- ===== ===== Basic earnings per share in accordance with U.S. GAAP: CHF CHF Continuing operations 13.36 40.65 Discontinued operations 20.20 -- ----- ----- Net income 33.56 40.65 ===== ===== Diluted earnings per share in accordance with U.S. GAAP: CHF CHF Continuing operations 14.02 39.80 Discontinued operations 19.20 -- ----- ----- Net income 33.22 39.80 ===== =====
61 10 Reconciliation of net income to Canadian GAAP
SIX MONTHS ENDED JUNE 30, ---------------- 1999 2000 ------- ------ (In millions of CHF) unaudited Net income as reported in the consolidated income statements in accordance with IAS 338 230 Adjustments required to conform with Canadian GAAP: Goodwill amortization and impairment (12) (11) Capitalized interest 6 -- Inventories (2) (1) Debt issue costs (1) -- Fixed assets 7 3 Pensions 14 3 Derivatives (94) (12) Accruals 13 4 Restructuring provisions (14) (1) Other 2 (3) Tax effect of Canadian GAAP adjustments 16 (10) ----- ----- Net income in accordance with Canadian GAAP 273 202 ===== ===== Continuing operations 128 202 Discontinued operations 145 -- ===== ===== Basic earnings per share in accordance with Canadian GAAP: CHF CHF Continuing operations 20.36 30.52 Discontinued operations 23.06 -- ----- ----- Net income 43.42 30.52 ===== ===== Fully diluted earnings per share in accordance with Canadian GAAP: CHF CHF Continuing operations 20.67 30.27 Discontinued operations 21.93 -- ----- ----- Net income 42.60 30.27 ===== =====
62 11 Reconciliation of shareholders' equity to U.S. and Canadian GAAP
DECEMBER 31, 1999 JUNE 30, 2000 -------------------- -------------------- US CANADIAN US CANADIAN GAAP GAAP GAAP GAAP ----- --------- ----- --------- (In millions of CHF) (In millions of CHF) unaudited unaudited Shareholders' equity as reported in the unaudited interim consolidated balance sheets in accordance with IAS 1,358 1,358 2,145 2,145 Adjustments required to conform with U.S. and Canadian GAAP: Goodwill: Cost 582 582 563 563 Amortization (368) (368) (369) (369) Capitalized interest 24 24 24 24 Inventories 1 (1) (1) (1) Debt issue costs 2 2 -- -- Fixed assets (71) (12) (68) (10) Pensions 85 85 88 88 Derivatives (264) (15) (183) (27) Accruals 9 9 13 13 Restructuring provisions -- 6 (2) 5 Other (14) (14) (16) (15) Tax effect of U.S. and Canadian GAAP adjustments 67 (14) 32 (26) ----- ----- ----- ----- Shareholders' equity in accordance with U.S. and Canadian GAAP 1,411 1,642 2,226 2,390 ===== ===== ===== =====
Comprehensive Income Beginning in 1998, U.S. GAAP requires the disclosure of comprehensive income which, for the Group, is net income increased or decreased for translation differences as presented in the notes to Group's interim consolidated financial statements. The following presents the Group's comprehensive income based upon IAS for each the six months ended June 30, 2000 and 1999.
SIX MONTHS ENDED JUNE 30, -------------------- 1999 2000 ---- ---- (In millions of CHF) Net income in accordance with IAS 338 230 Other comprehensive income: Currency translation adjustment 107 (32) --- --- Comprehensive income 445 198 === ===
63 12 NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS (in U.S. dollars except where otherwise stated) 1. BASIS OF PRESENTATION These unaudited pro forma combined financial statements have been prepared to reflect the combination of Alcan Aluminium Limited ("Alcan") and Alusuisse Group Ltd. ("algroup") using the purchase method and certain reorganizational events relating to algroup occurring prior to the combination. These unaudited pro forma combined financial statements have been prepared using Canadian GAAP, which is similar, in all material respects, to U.S. GAAP except as noted in Note 6. The unaudited pro forma combined financial statements are based on the following events which occurred prior to the combination: o Conversion of algroup's convertible debt into algroup common shares prior to the combination. o All of the outstanding shares of algroup are exchanged into Alcan Common Shares, virtually all of which were tendered at the date of combination, October 17, 2000, with the remainder to be exchanged or purchased as permitted under Swiss law which Alcan is currently undertaking. o On October 18, 1999, at an extraordinary shareholders' meeting, the shareholders of algroup approved the demerger of the chemical and energy division. The demerger occurred on November 1, 1999. The operations of the chemical and energy division were treated as discontinued operations in algroup's 1999 consolidated financial statements and consequently are not included in the unaudited pro forma combined statement of income for the year ended December 31, 1999. Also, these unaudited pro forma combined financial statements include the cash contribution of $234 million made by algroup to the chemical and energy division pursuant to the algroup chemicals demerger agreement. o A repayment of capital of CHF 90 per share for every share of algroup totaling $375 million, which was approved by the algroup shareholders on July 17, 2000. The amount was paid on October 13, 2000. o The repayment of $167 million owed to algroup by Lonza Group Ltd. pursuant to the algroup chemicals demerger agreement. The amount was paid to algroup in June 2000. o The payment of a special dividend of CHF 135 per share for every share of algroup totaling $562 million, which was approved by the algroup shareholders on July 17, 2000. The amount was paid on October 13, 2000. The unaudited pro forma combined financial statements have been adjusted to record the impact of businesses to be disposed of pursuant to the European Commission's decision to authorize the combination. See Note 5. 68 EX-99.3 7 m08474ex99-3.txt UNAUDITED PRO FORMA COMB. BALANCE SHEET OF ALCAN 1 EXHIBIT NO. 99.3: UNAUDITED PRO FORMA FINANCIAL INFORMATION 64 2 ALCAN ALUMINIUM LIMITED UNAUDITED PRO FORMA COMBINED BALANCE SHEET JUNE 30, 2000 (IN MILLIONS OF U.S. DOLLARS)
Historical Translated algroup Business Pro forma Pro forma Alcan historical IAS to divestitures adjustments combined Algroup Cdn GAAP Note(5) Note(2) Note(1) Note(3) (reclassified) ----------- ------------- ------- ----------- ------------ --------- ASSETS Current assets Cash and time deposits 88 181 - (5) (181) A 83 Receivables 1,468 1,082 - (57) - 2,493 Inventories 1,308 783 (1) (27) 38 B 2,101 ------- ----- ---- --- ------ ------ 2,864 2,046 (1) (89) (143) 4,677 Deferred charges and other assets 514 161 58 66 527 C 1,326 (including net assets held for sale) Property, plant and equipment, net 6,898 1,767 2 (67) 1,152 D 9,752 Goodwill, net - 164 120 - 2,106 E 2,390 Deferred income taxes - 56 - - 92 F 148 ------- ----- --- --- ----- ------ Total assets 10,276 4,194 179 (90) 3,734 18,293 ------- ----- ---- --- ------ ------ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Payables 1,380 1,015 16 (36) 302 G 2,677 Short term borrowings 586 892 - (4) 756 H 2,230 Income and other taxes 35 55 - - - 90 Debt maturing within one year 232 - - - - 232 ------- ----- ---- --- ------ ------ 2,233 1,962 16 (40) 1,058 5,229 Debt not maturing within one year 803 510 - (9) (1) I 1,303 Deferred credits and other liabilities 575 237 - (35) - 777 Deferred income taxes 798 137 13 (6) 646 J 1,588 Minority interests 204 32 - - - 236 SHAREHOLDERS' EQUITY Redeemable retractable preference shares 160 - - - - 160 Common shares 1,222 417 - - 3,080 K 4,719 Retained earnings 4,375 899 155 - (1,054) L 4,375 Other (94) - (5) - 5 M (94) ------- ----- ---- --- ------ ------ 5,663 1,316 150 - 2,031 9,160 Total liabilities and shareholders' equity 10,276 4,194 179 (90) 3,734 18,293 ======= ===== ==== === ====== ======
The accompanying notes are an integral part of the unaudited pro forma combined financial statements 65 3 ALCAN ALUMINIUM LIMITED UNAUDITED PRO FORMA STATEMENT OF INCOME FROM CONTINUING OPERATIONS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2000 (IN MILLIONS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS)
Historical Translated algroup Business Pro forma Pro forma Alcan historical IAS to divestitures adjustments combined Algroup Cdn GAAP Note(5) Note(2) Note(1) Note(3) (reclassified) ------------- --------------- -------- ------------ ----------- --------- REVENUES Sales and operating revenues 3,987 2,639 - (100) - 6,526 Other income 55 45 - - - 100 ----- ----- ---- ---- --- ----- 4,042 2,684 - (100) - 6,626 COSTS AND EXPENSES Cost of sales and operating expenses 3,014 2,056 4 (85) - 4,989 Depreciation and amortization 230 97 1 (4) 55 O 379 Selling, administrative and general expenses 178 214 - (6) - 386 Research and development expenses 33 25 - (1) - 57 Interest 16 75 (1) - 15 P 105 Other expenses 54 16 - - - 70 ----- ----- ---- ---- --- ----- 3,525 2,483 4 (96) 70 5,986 Income before income taxes, other items and 517 201 (4) (4) (70) 640 amortization of goodwill Income taxes 192 54 6 (2) (26) Q 224 ----- ----- ---- ---- --- ----- Income before other items and amortization of 325 147 (10) (2) (44) 416 goodwill Equity income - 1 - - - 1 Minority interest 2 (3) - - - (1) ----- ----- ---- ---- --- ----- Net income from continuing operations before 327 145 (10) (2) (44) 416 amortization of goodwill Amortization of goodwill - 6 7 - 17 R 30 ----- ----- ---- ---- --- ----- Net income from continuing operations 327 139 (17) (2) (61) 386 Dividends on preference shares 5 - - - - 5 ----- ----- ---- ---- --- ----- Net income from continuing operations 322 139 (17) (2) (61) 381 attributable to common shareholders ===== ===== ==== ==== === ===== Earnings per common share before amortization of goodwill Basic N/A 1.24 Fully diluted N/A 1.23 Earnings per common share after amortization of goodwill Basic 1.48 1.16 Fully diluted 1.48 1.14 Weighted average of common share outstanding Basic 214,600,000 330,762,000 Fully diluted 220,100,000 334,234,000
The accompanying notes are an integral part of the unaudited pro forma combined financial statements 66 4 ALCAN ALUMINIUM LIMITED UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME FROM CONTINUING OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 (IN MILLIONS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS)
Translated algroup historical IAS to Business Pro forma Historical Algroup Cdn GAAP divestitures adjustments Pro forma Alcan (reclassified) Note(3) Note(5) Note(2) combined ---------- -------------- -------- ------------ ----------- ---------- REVENUES Sales and operating revenues 7,324 5,064 - (180) - 12,208 Other income 179 82 - - 261 ------ ----- --- ---- ---- ------- 7,503 5,146 - (180) - 12,469 COSTS AND EXPENSES Cost of sales and operating expenses 5,695 3,901 29 (152) 38 N 9,511 Depreciation and amortization 477 194 3 (7) 110 O 777 Selling, administrative and general expenses 375 425 - (12) - 788 Research and development expenses 67 43 - (2) - 108 Interest 76 153 (9) - 25 P 245 Other expenses 127 33 - - - 160 ------ ----- --- ---- ---- ------- 6,817 4,749 23 (173) 173 11,589 Income before income taxes, other items and amortization of goodwill 686 397 (23) (7) (173) 880 Income taxes 211 93 1 (3) (64) Q 238 ------ ----- --- ---- ---- ------- Income before other items and amortization of goodwill 475 304 (24) (4) (109) 642 Equity income ( loss) (1) 5 - - - 4 Minority interest (14) (5) - - - (19) ------ ----- --- ---- ---- ------- Net income from continuing operations before amortization of goodwill 460 304 (24) (4) (109) 627 Amortization of goodwill - 11 16 - 33 R 60 ------ ----- --- ---- ---- ------- Net income from continuing operations 460 293 (40) (4) (142) 567 Dividends on preference shares 9 - - - - 9 ------ ----- --- ---- ---- ------- Net income from continuing operations attributable to common shareholders 451 293 (40) (4) (142) 558 ====== ===== === ==== ==== ======= Earnings per common share before amortization of goodwill Basic N/A 1.86 Fully diluted N/A 1.85 Earnings per common share after amortization of goodwill Basic 2.06 1.69 Fully diluted 2.03 1.67 Weighted average of common shares outstanding Basic 219,100,000 330,762,000 Fully diluted 224,500,000 334,234,000
The accompanying notes are an integral part of the unaudited pro forma combined financial statements 67 5 The unaudited pro forma combined balance sheet as of June 30, 2000 gives effect to the Alcan and algroup combination and related transactions as if such transactions occurred on that date. The unaudited pro forma combined statements of income for the six-month period ended June 30, 2000 and for the year ended December 31, 1999 give effect to the Alcan and algroup combination and related transactions as if such transactions had occurred on January 1, 1999. Certain reclassifications have been made to the algroup historical financial statements to conform to the presentation to be used by Alcan. The combination has been accounted for using the purchase method of accounting. In accordance with Canadian GAAP, the purchase price is based on the market value of the Alcan common shares for a reasonable period of time before and after October 17, 2000, the date the transaction was consummated. The average price of the Alcan common shares for the five trading days beginning on October 13 and ending on October 19, 2000 was $30.11 per share. The total purchase price has been allocated to the tangible and intangible assets and liabilities acquired based upon their fair values determined with the assistance of independent appraisers. The purchase price allocation is preliminary, based on facts currently known to Alcan. However, Alcan management does not expect significant changes in the purchase price allocation. The final allocation of the purchase price will be based upon valuations and other studies including independent appraisals that have not been completed. It is expected that the appraisals will be completed in early January 2001. The excess of the purchase price over the fair market value of the net assets acquired will be treated as goodwill, to be amortized over 40 years. 69 6 For the purpose of the unaudited pro forma combined financial statements, the purchase price and goodwill have been determined as follows:
JUNE 30, 2000 -------------------- (In millions of US$) Purchase price Acquisition of algroup shares (see below) $3,497 Transaction costs (of which $ 21 is incurred and included in deferred charges and other assets) 43 ------ 3,540 Book value of net assets acquired 1,466 Less: Special dividend (562) Repayment of capital (375) Algroup's predecessor goodwill (284) ADD: Conversion of the convertible debentures into algroup common shares 1 ------ 246 Excess of purchase price over the book value of net assets acquired $3,294 ======
Allocation of the excess of the purchase price over the book value of the net assets acquired: Inventories $ 38 Property, plant and equipment 1,152 Intangible assets 548 Restructuring costs (principally severance costs) (80) Derivatives (200) Deferred income taxes (554) Goodwill 2,390 ------ $3,294 ======
70 7 The purchase price for algroup has been determined as follows:
Algroup shares outstanding 6,790,262 Conversion of convertible debentures 1,170 ------------ 6,791,432 Exchange ratio 17.1 ------------ Alcan shares issued 116,133,487 ============ Price per Alcan share $ 30.11 ============ Purchase price (in millions) $ 3,497 ============
The accompanying unaudited pro forma combined financial statements are based on and should be read in conjunction with the historical consolidated financial statements of Alcan and algroup for the year ended December 31, 1999 and for the six-month period ended June 30, 2000, including the notes thereto which are included with this filing. The pro forma adjustments are based upon available information and include certain assumptions and adjustments, which the management of Alcan believes to be reasonable. These adjustments are directly attributable to the combination and are expected to have a continuing impact on Alcan's business, results of operations and financial position. The unaudited pro forma combined financial statements do not give effect to any potential cost savings or other synergies that could result from the combination. Plans are currently in development to integrate the operations of Alcan and algroup. A preliminary estimate of costs related to the integration and to be included in the purchase price allocation is $80 million consisting principally of severance costs. To the extent that other integration costs are incurred and not accounted for as accrued liabilities at the date of consummation of the combination, a charge may result, which may be material. The amount of the charge cannot be quantified at this time, but is expected to be recognized in the period in which restructuring occurs. To the extent that integration costs are accounted for as accrued liabilities and included in the allocation of the purchase price consideration, the amount allocated to goodwill would increase, and pro forma net income from continuing operations would decrease. The unaudited pro forma combined financial statements are not necessarily indicative either of the results that actually would have been achieved if the transactions reflected therein had been effective during the periods presented or of the results which may be obtained in the future. 71 8 2. FOREIGN CURRENCY TRANSLATION The algroup historical consolidated balance sheet information and related Canadian GAAP pro forma and business divestiture adjustments as of June 30, 2000 have been translated into U.S. dollars at the June 30, 2000 rate of exchange of US$ 1 - CHF 1.63. The algroup historical consolidated statements of income information for the year ended December 31, 1999, and for the six-month period ended June 30, 2000 and related Canadian GAAP pro forma and business divestiture adjustments to the unaudited pro forma statements of income, have been translated at the average rates of exchange of US$ 1 - CHF 1.5023, and US$ 1 - CHF 1.6512, respectively. 3. DIFFERENCES BETWEEN INTERNATIONAL ACCOUNTING STANDARDS AND CANADIAN GAAP AS THEY APPLY TO ALGROUP Refer to note 35 of algroup's 1999 consolidated financial statements which are included with this filing for a description of differences between International Accounting Standards and Canadian GAAP as they apply to algroup. 4. UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS The following adjustments have been made to prepare the pro forma balance sheet and statements of income. Pro forma income statement adjustments are assumed to occur as of January 1, 1999. Pro forma balance sheet adjustments are assumed to occur on June 30, 2000. 72 9
JUNE 30, 2000 (In millions of US$) -------------------- A Repayment of capital on algroup common shares (181) ----- B Fair value allocation to inventories 38 ----- C Reversal of transaction costs included in deferred charges and other assets (21) Fair value allocation to intangible assets 548 ----- 527 ----- D Fair value allocation to property plant and equipment 1,152 ----- E Elimination of predecessor goodwill (284) Goodwill arising on acquisition 2,390 ----- 2,106 ----- F Deferred income taxes arising on fair value allocations using a tax rate of 38% 92 ----- G Fair value allocation to derivatives 200 Accrued restructuring costs 80 Accrued transaction costs -- Alcan 22 ----- 302 ----- H Repayment of capital on algroup common shares 194 Special dividend on algroup common shares 562 ------ 756 ------
73 10
JUNE 30, 2000 (In millions of US$) -------------------- I Conversion of convertible debentures to algroup common shares (1) J Deferred income taxes on fair value allocations using a tax rate of 38% 646 ------ K Issuance of Alcan Common Shares 3,497 Conversion of convertible debentures to algroup common shares 1 Repayment of capital on algroup common shares (375) Elimination of algroup common shares residual value after conversion of the Convertible debentures, and repayment of capital on algroup common shares (43) ------ 3,080 ------ L Special dividend on algroup common shares (562) Elimination of algroup's residual retained earnings (492) ------ (1,054) ------ M Elimination of algroup deferred translation adjustment 5 ------
74 11
SIX-MONTH ENDED YEAR ENDED JUNE 30, 2000 DECEMBER 31, 1999 (In millions of US$) ------------- ----------------- N Fair value allocation to inventories charged to cost of sales and operating expenses - 38 --- --- O Depreciation of fair value allocation to property, plant and equipment and amortization of fair value allocation to intangible assets over 17 years and 13 years, respectively 55 110 --- --- P Reduction in interest expense re: convertible debentures - (8) (using an interest rate of 4 %) Reduction in interest expense re: repayment of amount owed by Lonza Group Ltd. (using an interest rate of 4 %) (3) (7) Increase in interest expense re: special dividend and repayment of capital using an interest rate of 4 % 18 40 --- --- 15 25 --- --- Q Income taxes recovery at 38 % on items included in items N,O and P 26 64 --- --- R Amortization of goodwill over 40 years 30 60 Elimination of predecessor goodwill amortization (13) (27) --- --- 17 33 --- ---
75 12 5. BUSINESS DIVESTITURES Pursuant to the European Commission's decision to authorize the combination, Alcan agreed to divest the following algroup businesses: o the alumina trihydrate plant at Martinswerk, Germany; o the Star lithographic sheet mill at Bridgenorth, United Kingdom; and, o certain machines producing semi-rigid aluminum containers. These divestitures are required to be completed by March 31, 2001. The unaudited pro forma combined financial statements have been adjusted to record the impact of these divestitures. The net assets to be divested have been included in Deferred charges and other assets in the unaudited pro forma combined balance sheet and the results of operations from these assets have been removed from the unaudited pro forma statements of income. 6. U.S. GAAP Under U.S. GAAP, pro forma combined common shareholders' equity as at June 30, 2000 would be $9,018, pro forma combined net income for the year ended December 31, 1999 and for the six-month period ended June 30, 2000 would be $411 million and $427 million, respectively. Basic combined pro forma earnings per share for the year ended December 31, 1999 and the six-month period ended June 30, 2000 would be $1.27 and 1.31, respectively. Refer to Note 5 of the Alcan consolidated financial statements included in Alcan's most recent 10-K for a description of the differences between Canadian and U.S. GAAP as they apply to Alcan. Refer to Note 35 of algroup's 1999 consolidated financial statements which are included with this filing for a description of the differences between IAS and U.S. GAAP as the apply to algroup. The disclosure of net income before amortization of goodwill in the income statements is not permitted under U.S. GAAP. 76 EX-99.4 8 m08474ex99-4.txt CAUTIONARY STATEMENT 1 EXHIBIT NO. 99.4: 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 8K-A 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. 77 -----END PRIVACY-ENHANCED MESSAGE-----