-----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, DAD9YJ/cUDhCBEtoD0JNwIm7NskqqCp/AAjIHbTy8YHgG4DkYE8M/JNLXwUburcC aZZ9ZjanGr/WSNVQdjp0+g== 0000950123-98-009837.txt : 19981116 0000950123-98-009837.hdr.sgml : 19981116 ACCESSION NUMBER: 0000950123-98-009837 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALCAN ALUMINIUM LTD /NEW CENTRAL INDEX KEY: 0000004285 STANDARD INDUSTRIAL CLASSIFICATION: PRIMARY PRODUCTION OF ALUMINUM [3334] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-03677 FILM NUMBER: 98745841 BUSINESS ADDRESS: STREET 1: 1188 SHERBROOKE ST WEST CITY: MONTREAL QUEBEC CANA STATE: A8 BUSINESS PHONE: 5148488000 10-Q 1 ALCAN ALUMINIUM LIMITED 1 ====================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998 Commission file number 1-3677 ALCAN ALUMINIUM LIMITED (Exact name of registrant as specified in its charter) CANADA Inapplicable State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization)
1188 SHERBROOKE STREET WEST, MONTREAL, QUEBEC, CANADA H3A 3G2 (Address of Principal Executive Offices and Postal Code) (514) 848-8000 (Registrant's Telephone Number, including Area Code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (check) No ____ At September 30, 1998, the registrant had 227,631,098 shares of common stock (without nominal or par value) outstanding. ====================================================================== 2 PART I - FINANCIAL INFORMATION In this report, all dollar amounts are stated in U.S. Dollars and all quantities in metric tons, or tonnes, unless indicated otherwise. A tonne is 1,000 kilograms, or 2,204.6 pounds. The word "Company" refers to Alcan Aluminium Limited and, where applicable, one or more consolidated subsidiaries. ITEM 1. FINANCIAL STATEMENTS ALCAN ALUMINIUM LIMITED INTERIM CONSOLIDATED STATEMENT OF INCOME (unaudited)
Periods ended September 30 (in millions of US$, except per share amounts) Third quarter Nine months ---------------- ---------------- 1998 1997 1998 1997 ------ ------ ------ ------ REVENUES Sales and operating revenues..... $1,950 $1,949 $5,889 $5,830 Other income..................... 10 16 47 63 ------ ------ ------ ------ 1,960 1,965 5,936 5,893 ------ ------ ------ ------ COSTS AND EXPENSES Cost of sales and operating expenses........................ 1,514 1,506 4,560 4,514 Depreciation..................... 116 106 339 323 Selling, administrative and general expenses............... 108 106 325 324 Research and development expenses....................... 17 16 51 50 Interest......................... 21 26 65 77 Other expenses................... 23 11 41 40 ------ ------ ------ ------ 1,799 1,771 5,381 5,328 ------ ------ ------ ------ Income before income taxes and other items................ 161 194 555 565 Income taxes (notes 1 and 3)..... 44 76 198 187 Income before other items........ 117 118 357 378 Equity loss...................... (9) (36) (48) (34) Minority interests............... (1) (2) 1 (5) ------ ------ ------ ------ NET INCOME....................... $ 107 $ 80 $ 310 $ 339 Dividends on preference shares... 3 2 8 7 ------ ------ ------ ------ NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS......... $ 104 $ 78 $ 302 $ 332 ------ ------ ------ ------
2 3 ALCAN ALUMINIUM LIMITED INTERIM CONSOLIDATED STATEMENT OF INCOME (cont'd) (unaudited)
Periods ended September 30 (in millions of US$, except per share amounts) Third quarter Nine months --------------- --------------- 1998 1997 1998 1997 ----- ----- ----- ----- NET INCOME PER COMMON SHARE (NOTE 4).................... $0.46 $0.34 $1.33 $1.46 ----- ----- ----- ----- DIVIDENDS PER COMMON SHARE.......... $0.15 $0.15 $0.45 $0.45 ----- ----- ----- -----
INTERIM CONSOLIDATED STATEMENT OF RETAINED EARNINGS (unaudited)
Nine months ended September 30 (in millions of US$) 1998 1997 ------ ------ RETAINED EARNINGS - BEGINNING OF PERIOD As previously reported................................... $3,556 $3,217 Accounting change (note 1)............................... 306 - ------ ------ AS RESTATED.............................................. 3,862 3,217 Net income............................................... 310 339 Dividends - Common....................................... 102 103 - Preference................................... 8 7 ------ ------ RETAINED EARNINGS - END OF PERIOD........................ $4,062 $3,446 ------ ------
3 4 ALCAN ALUMINIUM LIMITED INTERIM CONSOLIDATED BALANCE SHEET (unaudited for 1998)
(in millions of US$) SEPTEMBER 30 December 31 1998 1997 ------------ ----------- ASSETS CURRENT ASSETS Cash and time deposits..................... $ 375 $ 608 Receivables................................ 1,440 1,292 Inventories Aluminum................................. 822 800 Raw materials............................ 342 307 Other supplies........................... 248 234 ------- ------- 1,412 1,341 ------- ------- Total current assets........................ 3,227 3,241 ------- ------- Deferred charges and other assets........... 474 424 Investments (note 7)........................ 135 251 Property, plant and equipment Cost....................................... 12,600 11,715 Accumulated depreciation................... 6,700 6,257 ------- ------- 5,900 5,458 ------- ------- TOTAL ASSETS................................ $ 9,736 $ 9,374 ------- -------
4 5 ALCAN ALUMINIUM LIMITED INTERIM CONSOLIDATED BALANCE SHEET (cont'd) (unaudited for 1998)
(in millions of US$, SEPTEMBER 30 December 31 except per common share amounts) 1998 1997 ------------ ----------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Payables..................................... $ 1,114 $ 1,052 Short-term borrowings........................ 150 238 Income and other taxes....................... 53 98 Debt maturing within one year................ 63 36 ------- ------- 1,380 1,424 ------- ------- Debt not maturing within one year (note 7).... 1,342 1,241 Deferred credits and other liabilities........ 616 623 Deferred income taxes......................... 754 969 Minority interests............................ 103 43 SHAREHOLDERS' EQUITY Redeemable non-retractable preference shares.......................... 160 203 Common shareholders' equity Common shares.............................. 1,259 1,251 Retained earnings.......................... 4,062 3,556 Deferred translation adjustments........... 60 64 ------- ------- 5,381 4,871 ------- ------- Total shareholders' equity.................... 5,541 5,074 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.... $ 9,736 $ 9,374 ------- ------- COMMON SHAREHOLDERS' EQUITY PER COMMON SHARE.. $ 23.64 $ 21.43 ------- ------- RATIO OF TOTAL BORROWINGS TO EQUITY........... 22:78 23:77 ------- -------
5 6 ALCAN ALUMINIUM LIMITED INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
Nine months ended September 30 (in millions of US$) 1998 1997 ---- ---- OPERATING ACTIVITIES Net income...................................... $310 $339 Adjustments to determine cash from operating activities: Depreciation................................ 339 323 Deferred income taxes....................... 33 16 Equity loss - net of dividends.............. 53 40 Change in operating working capital......... (102) (243) Change in deferred charges, other assets, deferred credits and other liabilities - net............... (65) (69) Gain on sales of businesses - net........... (1) (13) Other - net................................. 6 27 ---- ---- CASH FROM OPERATING ACTIVITIES.................... 573 420 ---- ---- FINANCING ACTIVITIES New debt........................................ 55 39 Debt repayments................................. (50) (39) ---- ---- 5 - Short-term borrowings - net..................... (107) 95 Common shares issued............................ 8 13 Redemption of preferred shares.................. (43) - Dividends - Alcan shareholders (including preference).............. (110) (110) - Minority interests.................. (1) (2) ---- ---- CASH USED FOR FINANCING ACTIVITIES................ (248) (4) ---- ---- INVESTMENT ACTIVITIES Property, plant and equipment................... (511) (372) Investments..................................... (72) - Net proceeds from disposal of businesses and other assets................... 4 49 ---- ---- CASH USED FOR INVESTMENT ACTIVITIES............... (579) (323) ---- ---- Effect of exchange rate changes on cash and time deposits....................... 5 (7) ---- ---- INCREASE (DECREASE) IN CASH AND TIME DEPOSITS..... (249) 86 Cash of companies consolidated (deconsolidated)... 16 (11) Cash and time deposits - beginning of period........................... 608 546 ---- ---- Cash and time deposits - end of period................................. $375 $621 ---- ----
6 7 ALCAN ALUMINIUM LIMITED INFORMATION BY PRODUCT SECTOR (unaudited) Periods ended September 30 (in millions of US$) THIRD QUARTER
SALES AND OPERATING REVENUES OPERATING INCOME ----------------------------- ---------------- Intersector Third parties ----------- ------------- 1998 1997 1998 1997 1998 1997 ---- ---- ---- ---- ---- ---- Raw materials and chemicals.................... $ 130 $ 131 $ 123 $ 140 $ 24 $ 45 Primary metal................. 359 368 307 354 73 138 Fabricated products........... - - 1,516 1,452 85 85 Intersector and other items.................. (489) (499) 4 3 31 (21) ----- ----- ------ ------ ----- ----- $ - $ - $1,950 $1,949 $ 213 $ 247 ----- ----- ------ ------ Reconciliation to net income Equity loss................. $ (9) $ (36) Corporate offices........... (32) (29) Interest.................... (21) (26) Income taxes (note 1)....... (44) (76) ----- ----- NET INCOME.................. $ 107 $ 80 ----- -----
NINE MONTHS
SALES AND OPERATING REVENUES OPERATING INCOME ---------------------------- ---------------- Intersector Third parties ------------- ------------- 1998 1997 1998 1997 1998 1997 ---- ---- ---- ---- ---- ---- Raw materials and chemicals................... $ 386 $ 375 $ 389 $ 386 $ 93 $ 79 Primary metal................ 1,090 1,119 982 1,089 288 446 Fabricated products.......... - - 4,509 4,344 249 240 Intersector and other items................. (1,476) (1,494) 9 11 87 (39) ------ ------ ------ ------ ----- ----- $ - $ - $5,889 $5,830 $ 717 $ 726 ------ ------ ------ ------ Reconciliation to net income Equity income (loss)........ $ (48) $ (34) Corporate offices........... (96) (89) Interest.................... (65) (77) Income taxes (note 1)....... (198) (187) ----- ------ NET INCOME.................. $ 310 $ 339 ----- ------
7 8 ALCAN ALUMINIUM LIMITED NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1998 (UNAUDITED) (in millions of US$, except per share amounts) 1. ACCOUNTING CHANGE In 1998, the Company adopted new recommendations of the Canadian Institute of Chartered Accountants dealing with accounting for income taxes. The principal change under the new recommendations is the requirement to revalue deferred income tax liabilities for all changes in tax rates and exchange rates. The Company has adopted the new recommendations retroactively without restating prior years. The cumulative effect of adopting the new recommendations at January 1, 1998 is to decrease Deferred income taxes by $285, to increase Retained earnings by $306 and to decrease Deferred translation adjustments by $21. For the first nine months of 1998, the impact of the revaluation of Deferred income taxes to reflect current exchange rates is to decrease the Company's income tax provision by $20. 2. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) Differences in 1998 relate principally to foreign currency translation and in 1997 to accounting for deferred income taxes. RECONCILIATION OF CANADIAN AND U.S. GAAP
1998 1997 ---------------- ---------------- AS U.S. As U.S. REPORTED GAAP Reported GAAP -------- ---- -------- ---- Net income First quarter..................... $ 117 $ 117 $ 143 $ 142 Second quarter.................... 86 94 116 141 Third quarter..................... 107 103 80 90 ------ ------ ------ ------ Nine months....................... $ 310 $ 314 $ 339 $ 373 ------ ------ ------ ------ Net income attributable to common shareholders.......... $ 302 $ 306 $ 332 $ 366 ------ ------ ------ ------ Net income per common share Basic and diluted............... $ 1.33 $ 1.34 $ 1.46 $ 1.61 ------ ------ ------ ------
8 9 RECONCILIATION OF CANADIAN AND U.S. GAAP (CONT'D)
1998 1997 --------------------------------------------- AS U.S. As U.S. REPORTED GAAP Reported GAAP -------- ---- -------- ---- Comprehensive income * First quarter................ n/a $ 111 n/a $ 61 Second quarter............... n/a $ 54 n/a $ 178 Third quarter................ n/a $ 166 n/a $ 29 ------- ------- ------- ------- Nine months.................. $ $ 331 $ 268 ------- ------- ------- ------- Deferred income taxes - September 30.......... $ 754 $ 754 $ 993 $ 718 ------- ------- ------- ------- Retained earnings - September 30.......... $ 4,062 $ 4,099 $ 3,446 $ 3,783 ------- ------- ------- ------- Deferred translation adjustments - September 30... $ 60 $ 20 $ 105 $ 36 ------- ------- ------- ------- * Beginning in 1998, U.S. GAAP requires the disclosure of comprehensive income which, for the Company, is Net income under U.S. GAAP plus the movement in Deferred translation adjustments under U.S. GAAP. The concept of comprehensive income does not exist under Canadian GAAP.
Beginning in 2000, the Company will be implementing, for U.S. GAAP reporting purposes only, recently issued FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. The Company is presently assessing the impact of the new standard on its financial reporting. 3. INCOME TAXES
Third quarter Nine months ---------------- ----------------- 1998 1997 1998 1997 ---- ---- ---- ---- Current........................ $ 44 $ 56 $ 165 $ 179 Deferred....................... - 22 33 16 ---- ---- ----- ----- $ 44 $ 78 $ 198 $ 195 ---- ---- ----- -----
The composite of the applicable statutory corporate income tax rates in Canada is 40.4% (40.3% for 1997). The difference between income taxes calculated at the composite rate and the amounts shown as reported is attributable mainly to investment and other allowances, tax exempt items and exchange. In 1997 the difference is attributable to prior years' tax adjustments and investment and other allowances. 9 10 4. NET INCOME PER COMMON SHARE Net income per common share is based on the average number of shares outstanding during the period (third quarter 1998: 227.6 million; 1997: 227.1 million; nine months 1998: 227.5 million; 1997: 227.0 million). As at September 30 1998, there were 227,631,098 common shares outstanding. 5. SUPPLEMENTARY INFORMATION STATEMENT OF CASH FLOWS
Third quarter Nine months ------------- --------------- 1998 1997 1998 1997 ----- ----- ------ ------ Interest paid................. $ 24 $ 28 $ 73 $ 78 Income taxes paid............. 48 22 233 152 ----- ----- ------ ------
SUMMARIZED FINANCIAL INFORMATION The following is summarized consolidated financial information for Alcan Aluminum Corporation, a wholly-owned subsidiary in the United States.
Third quarter Nine months ------------- --------------- 1998 1997 1998 1997 ----- ----- ------ ------ RESULTS OF OPERATIONS Revenues................................ $ 955 $ 948 $2,863 $2,767 Costs and expenses...................... 871 882 2,630 2,619 ----- ----- ------ ------ Income before incomes taxes............. 84 66 233 148 Income taxes............................ 33 26 92 58 ----- ----- ------ ------ Net income.............................. $ 51 $ 40 $ 141 $ 90 ----- ----- ------ ------
SEPTEMBER 30 December 31 1998 1997 ------------ ----------- FINANCIAL POSITION Current assets............................. $ 865 $ 801 Current liabilities........................ 409 376 ------ ------ Working capital............................ 456 425 Property, plant and equipment - net........ 713 736 Other liabilities - net.................... (55) (199) ------ ------ 1,114 962 Debt not maturing within one year.......... 102 102 ------ ------ Net assets................................. $1,012 $ 860 ------ ------
10 11 In the above figures, inventories have been valued principally by the last-in, first-out (LIFO) method. In the Company's consolidated financial statements, the average cost method is used. 6. ACQUISITION OF CONTROLLING INTEREST IN INDIAN ALUMINIUM COMPANY, LIMITED On July 3, 1998, the Company acquired an additional 17% of Indian Aluminium Company, Limited (Indal), and will acquire a further 3% on completion of certain formalities, for a total of $70 in cash. This will bring Alcan's ownership in Indal to 54.6%. The accounts of Indal are being consolidated with effect from July 1998. 7. SUBSEQUENT EVENT On October 28, 1998, the Company issued $200 of 6.25% debentures due 2008 and $100 of 7.25% debentures due 2028. The proceeds will be used for general corporate purposes. In October and November 1998, the Company reduced it's 45.6% interest in Nippon Light Metal Company, Ltd. (NLM) to below 20%. The net cash proceeds from the sale of shares is approximately $114 to be reflected in the fourth quarter of 1998. With the reduction in Alcan's interest to below 20%, NLM will no longer be accounted for on an equity basis but will be treated as a portfolio investment. 8. PRIOR YEAR AMOUNTS Certain prior year amounts have been reclassified to conform with the 1998 presentation. In the opinion of management, all adjustments necessary for a fair presentation of interim period results have been included in the financial statements. These interim results are not necessarily indicative of results for the full year. 11 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS
Third quarter Nine months Second quarter -------------- ------------ ------- 1998 1997 1998 1997 1998 ----- ----- ----- ----- ----- Highlights (US$ millions, except per share amounts) Sales and operating revenues........... 1,950 1,949 5,889 5,830 1,986 Net income............................. 107 80 310 339 86 Net income per common share............ 0.46 0.34 1.33 1.46 0.37
The Company reports third quarter consolidated net income of $107 million compared to $80 million for the similar period of 1997. After preference share dividends, net income per common share for the quarter is 46 cents, compared to 34 cents a year earlier. The current year's third quarter includes an after-tax gain of $20 million (9 cents per share) for exchange revaluation of the Company's accumulated deferred tax liability and after-tax charges of $9 million (4 cents per share) for losses at the 45.6%-owned Nippon Light Metal Company, Ltd. (NLM) and of $7 million (3 cents per share) for rationalization costs in Europe. The 1997 period included a special charge of $30 million (13 cents per share) and operating losses of $7 million (3 cents per share) relating to NLM. Excluding these items, the net income for the quarter was $103 million (44 cents per share) compared to $117 million (50 cents per share) for the corresponding quarter of 1997. The rationalization costs relate to manpower reductions in Alcan's European fabricating operations as part of the cost reduction programme in that region. By the end of 1998, employee numbers will be reduced by about 500 in these operations. The Company also reports that it has reduced its 45.6% interest in NLM to below 20%. The net cash proceeds of the sale of shares is approximately $165 million with a corresponding after-tax gain of approximately $114 million to be reflected in the fourth quarter results. With the reduction in Alcan's interest to below 20%, NLM will no longer be accounted for on an equity basis but will be treated as a portfolio investment. The underlying performance of Alcan's core businesses remained satisfactory in this period of very weak metal prices. Strong demand continued for the Company's products in North and South America. However, slower growth in Europe is anticipated. In line with the Company's strategy of focussing on its upstream and large-scale fabricating businesses, the shareholding in Nippon Light Metal in Japan has been reduced. Alcan remains committed to Asia as a region offering strong long-term growth and will continue its presence in Japan through on-going links with NLM. 12 13
Second Third quarter Nine months quarter ---------------- ---------------- -------- Volumes (thousands of tonnes) 1998 1997 1998 1997 1998 ------- ------- ------ ------- ------- Shipments Ingot products*........................... 213 215 622 643 207 Fabricated products....................... 467 436 1,372 1,295 469 Fabrication of customer-owned metal.......... 80 70 220 210 72 ------- ------- ------ ------ ------- Total volume................................. 760 721 2,214 2,148 748 ------- ------- ------ ------ ------- Ingot product realizations (US$ per tonne)... 1,482 1,733 1,580 1,733 1,591 Fabricated product realizations (US$ per tonne) 2,875 2,950 2,937 2,970 2,930
*Includes primary and secondary ingot and scrap Sales and operating revenues for the third quarter of 1998 were unchanged from a year earlier at $1,950 million reflecting lower prices offset by increased volume. Total fabricated product volumes, which include products fabricated from customer-owned metal, were 547 thousand tonnes (kt) in the third quarter, some 8% higher than a year earlier and slightly ahead of the second quarter of 1998. This reflects strong North American shipments, seasonally lower sales in Europe and the consolidation of shipments from Indian Aluminium Company, Limited (Indal). Average ingot product realizations declined $109/tonne from the second quarter and $251/tonne from the third quarter of 1997 compared to declines of $48 and $296 respectively in the LME 3-month price. Fabricated product realizations declined $55/tonne from the second quarter level. For the nine months, average realizations are down just $33/tonne from the previous year, despite much lower metal prices, reflecting improved local currency prices and stronger currencies in Europe. PRODUCT SECTOR REVIEW The Company reports selected information by major product sector, viewed on a stand-alone basis. Transactions between product sectors are conducted on an arm's length basis and reflect market-related prices. Thus, profit on all alumina produced by the Company, whether sold to third parties or used in the Company's smelters, is included in the raw materials and chemicals sector. Similarly, income from primary metal operations is mainly profit on metal produced by the Company, whether sold to third parties or used in the Company's fabricating operations. Income from fabricated product businesses represents only the fabricating profit on rolled products and downstream businesses. 13 14
Second Third quarter Nine months quarter -------------- -------------- ------- (US$ millions) 1998 1997 1998 1997 1998 ------ ------ ------ ------ ----- Operating income Raw materials and chemicals... 24 45 93 79 30 Primary metal................. 73 138 288 446 85 Fabricated products........... 85 85 249 240 88 Intersector and other items... 31 (21) 87 (39) 37 ----- ----- ----- ----- ----- 213 247 717 726 240 Equity loss..................... (9) (36) (48) (34) (23) Corporate offices............... (32) (29) (96) (89) (34) Interest........................ (21) (26) (65) (77) (21) Income taxes.................... (44) (76) (198) (187) (76) ----- ----- ----- ----- ----- Net income...................... 107 80 310 339 86 ----- ----- ----- ----- -----
Operating profits from raw material and chemical operations declined from the year-ago quarter with lower selling prices partially offset by cost savings. Earnings declined from the second quarter as the effect of lower metal prices flowed through to alumina prices. The decline in earnings from primary metal operations compared to the second quarter of 1998 and the year-ago quarter results primarily from lower realizations for ingot. Fabricated products earnings were unchanged from the second quarter reflecting rationalization costs of $11 million in Europe offset by improved earnings from North America and the consolidation of Indal's earnings. "Intersector and other items" primarily reflects the realization or deferral of profits on intersector sales of metal. Profits were deferred in 1997 due to generally rising ingot prices. In the first nine months of 1998 previously deferred profits on intersector sales were realized as ingot prices decreased. Also included in this category is interest income. Alcan recorded a loss from equity-accounted companies of $9 million for the third quarter primarily arising at NLM in Japan, where business conditions remain difficult. Following the reduction of Alcan's interest to below 20% in the fourth quarter, NLM will be cost-accounted and equity profits and losses will no longer arise. During the third quarter the Company increased its shareholding in Indal to majority ownership and, accordingly, that company is now consolidated as a subsidiary. Revaluation of the Company's cumulative deferred income tax liability to reflect current exchange rates, as required by new Canadian accounting standards, resulted in a write-back of $20 million. Each subsequent US$0.01 increase (decrease) in the value of the Canadian dollar will decrease (increase) the Company's net income by about $6 million, as a result of the revaluation of deferred income taxes. 14 15 GEOGRAPHIC REVIEW
Second Third quarter Nine months quarter ---------------- ---------------- -------- Net income (Loss) (US$ millions) 1998 1997 1998 1997 1998 ---- ---- ---- ---- ---- Canada......................... 45 58 126 189 34 United States.................. 41 41 113 107 41 South America.................. - 3 6 22 1 Europe......................... 3 6 32 33 5 Asia and Pacific............... (5) (27) (28) (7) (17) Other (including eliminations) 23 (1) 61 (5) 22 ------ ------ ------ ------ ------- Net income..................... 107 80 310 339 86 ------ ------ ------ ====== -------
In Canada, operating net income declined from the second quarter and the prior year due to the effect of lower metal prices on primary metal operations. The quarter's results also include the deferred income tax revaluation referred to above. In the United States, net income from operations was unchanged reflecting strong fabricated product volumes, offset by lower realizations from smelter operations. Operating results in South America were affected by lower raw material and primary metal prices. European results were lower reflecting lower prices for alumina and metal. Also, fabricated products results were affected by seasonally lower volumes and the $7 million after-tax cost of manpower reductions. Results in the Asia and Pacific region for the quarter reflect operating losses from Japan as well as lower alumina prices. The profit from "Other" in the quarter arises principally from the recognition of previously deferred profits on inter-regional sales of ingot. In 1997 this result was adverse as profits were deferred in a generally rising metal price environment. LIQUIDITY AND CAPITAL RESOURCES OPERATING ACTIVITIES Cash generated from operating activities during the first nine months of 1998 was $573 million, compared to $420 million in the comparable period of 1997, primarily due to a smaller increase in working capital. This was achieved despite higher sales volume and reflects improved working capital turnover. FINANCING ACTIVITIES Cash used for financing activities in the first nine months of 1998 was $248 million compared to $4 million in the comparable period of 1997, reflecting the redemption of preference shares ($43 million) and the repayment of short-term debt ($107 million). In the 1997 period short-term 15 16 borrowings increased by $95 million. The debt:equity ratio at September 30 was 22:78, compared to the levels at June 30, 1998 of 21:79 and 23:77 a year ago. Total borrowings at September 30,1998 were $1,555 million compared to $1,536 million a year earlier. At the end of the third quarter of 1998, the Company had cash and time deposits of $375 million, reduced from $608 million at the beginning of the year. On September 24, 1998, the Company's Board of Directors authorized the repurchase of up to 22,700,000 shares, representing approximately 10% of the outstanding Common Shares, under a Normal Course Issuer Bid. This authorization terminates on September 28, 1999. On October 28, 1998 the Company completed a public offering of $200 million 6.25% Debentures, due 2008 and $100 million 7.25% Debentures, due 2028. INVESTMENT ACTIVITIES Net capital investment during the first nine months of 1998 was $579 million, compared to $323 million a year earlier. The current period includes $70 million for the acquisition of an additional 20% of Indian Aluminium Company, Limited. The year-ago period also included $49 million of proceeds from disposal of businesses and other assets. The investment of $1.6 billion in a new 375 kt/y aluminum smelter at Alma, Quebec is underway, with expenditure of approximately $200 million anticipated in the current year and most of the remaining expenditure falling into 1999 and 2000. LONG-TERM CONTRACT On November 9, 1998 the Company announced the signing of a ten-year aluminum supply agreement with General Motors Corporation (GM). Alcan and GM will also partner in a number of joint activities, including research, design and technology. FINANCIAL INSTRUMENTS - CURRENCY HEDGING FOR ALMA SMELTER Through a combination of option contracts and forward exchange contracts totaling $932 million at September 30,1998, and maturing over various periods in 1998 and 1999, the Company has hedged its future Canadian dollar commitments for the construction of the new smelter at Alma, Quebec. The present hedging position for the Alma project will ensure that the Company will pay, on average, no more than $0.72 for Can$1.00, and will be able to benefit, in part, from any future reductions in the value of the Canadian dollar. Any gains or losses from these hedging activities, and related costs, will be included in the capital cost of the new smelter. YEAR 2000 COMPLIANCE Alcan's Year 2000 project continues to be on target in relation to its key milestones with a few exceptions. The Alcan Year 2000 project, which was designed with the assistance of outside consultants, includes evaluation and, where necessary, remediation of systems hardware and related applications (often together referred to as "IT Systems"). The Project also includes IT systems such as process controls and instrumentation (some of which may contain non-compliant embedded technology) used in manufacturing and related support systems such as 16 17 safety or environmental control systems. With respect to Alcan's IT systems and non-IT systems, remediation planning is generally complete. Repair and replacement of critical systems determined to require remediation is expected to be substantially complete by year-end 1998. Remediation of a small number of critical systems at North American facilities has been rescheduled for completion in the first quarter of 1999. The rescheduling of this remediation work is not expected to have a material adverse effect on Alcan's Year 2000 preparedness. Alcan is in excess of 50% complete with respect to repair and replacement for all systems, both critical and non-critical, which meets Alcan's plan objectives. Test planning of systems (including remediated systems) and implementation planning to integrate remediated systems into operations is currently under way. In the first quarter of 1999, Alcan will conduct actual testing of individual systems that were replaced or remediated. Alcan's plan for full integration testing has been advanced by three months and is now targeted to be completed by the end of the second quarter of 1999. With respect to third parties, Alcan's Year 2000 project has included not only evaluation, (and, where required, remediation of systems that electronically interact with third parties) but also working closely with Alcan's key business partners to evaluate their readiness for the Year 2000. Alcan is dependant upon a number of key third-party suppliers including utilities and raw material suppliers. Alternate suppliers are not necessarily available. Alcan is therefore increasing its focus on third-party readiness with respect to Year 2000 compliance which includes an assessment of third-party preparedness for disaster recovery. Alcan's Year 2000 project continues to reduce significantly Alcan's level of uncertainty about its own Year 2000 situation. Alcan believes that, with the implementation of the project as scheduled, the possibility of material interruptions in normal operations will be significantly reduced. Alcan is less certain about the readiness of third parties with which it does business. Certain third-party failures could result in business interruptions or delays that could have a material adverse effect on Alcan's business and financial condition as could unexpected impediments affecting Alcan's ability to complete its Year 2000 remediation in a timely manner. Business continuity planning and related contingency planning is under way and will be receiving increased attention over the next several months. As systems testing and integration testing advances, Alcan will be able to better evaluate the most reasonable likely worst case scenarios. Such scenarios will also become more evident in relation to third-party dependencies as the position of key suppliers becomes better known. Detailed contingency plans will then be developed in light of the results of these reviews. Costs associated with Year 2000 repair and replacement of systems at Alcan facilities, based on information currently available, are still estimated to be US$50 million. It is expected that the majority of these costs will be incurred in 1998. Costs incurred to the end of the third quarter of 1998 were US$13 million. Generally, costs are being expensed as incurred over the 1998 and 1999 periods. 17 18 PART II. -- OTHER INFORMATION ITEMS 1. THROUGH 5. The registrant has nothing to report under these items. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (27) Financial Data Schedule. (Filed herewith.) (99) Cautionary statement for purposes of the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995. (Filed herewith.) (b) Reports on Form 8-K None were filed in the quarter ended September 30, 1998. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ALCAN ALUMINIUM LIMITED Dated: November 12, 1998 By: /s/ Denis G. O'Brien -------------------------- Denis G. O'Brien Controller (A Duly Authorized Officer) 18 19 EXHIBIT INDEX Exhibit Number Description (27) Financial Data Schedule. (99) Cautionary statement for purposes of the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995. EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM 10-Q OF ALCAN ALUMINIUM LIMITED FOR THE QUARTER ENDED 30 SEPTEMBER 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 375 0 1,440 0 1,412 3,227 12,600 6,700 9,736 1,380 1,342 0 160 1,259 4,122 9,736 5,889 5,936 4,560 4,560 339 0 65 555 198 310 0 0 0 310 1.33 1.33
EX-99 3 CAUTIONARY STATEMENT 1 EXHIBIT NO. 99: CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Written or oral statements made by Alcan or its representatives, including statements set forth in Alcan's Form 10-Q for the quarter ended September 30, 1998, which describe the Company's or management's objectives, projections, estimates, expectations or predictions of the future may be "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995, which can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," "estimates," "anticipates" or the negative thereof or other variations thereon. The Company cautions that, by their nature, forward-looking statements involve risk and uncertainty and that the Company's actual results could differ materially from those expressed or implied in such forward-looking statements or could affect the extent to which a particular projection is realized. Important factors which could cause the Company's actual performance to differ materially from projections or expectations included in forward-looking statements include global aluminum supply and demand conditions, aluminum ingot prices and changes in other raw materials costs and availability, cyclical demand and pricing within the principal markets for the Company's products, changes in government regulations, particularly those affecting environmental, health or safety compliance, economic developments and other factors within the countries in which the Company operates or sells its products and other factors relating to the Company's ongoing operations including, but not limited to, litigation, labour negotiations and fiscal regimes. Copies of the Company's filings may be obtained by contacting the Company or the United States Securities and Exchange Commission. -----END PRIVACY-ENHANCED MESSAGE-----