-----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, KMzuyKi0HNN/VipJpsWTxDsP/6tj4uubjrgmaxB1i+SIT7oV6Kfj4Yl+LM7Piy/W O2ffpsnfj5wWhqyViEhNJA== 0001130319-02-000763.txt : 20020814 0001130319-02-000763.hdr.sgml : 20020814 20020814114339 ACCESSION NUMBER: 0001130319-02-000763 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALCAN INC CENTRAL INDEX KEY: 0000004285 STANDARD INDUSTRIAL CLASSIFICATION: PRIMARY PRODUCTION OF ALUMINUM [3334] IRS NUMBER: 000000000 STATE OF INCORPORATION: A6 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03677 FILM NUMBER: 02732756 BUSINESS ADDRESS: STREET 1: 1188 SHERBROOKE ST WEST CITY: MONTREAL QUEBEC CANA STATE: A8 ZIP: 00000 BUSINESS PHONE: 5148488000 MAIL ADDRESS: STREET 1: 1188 SHERBROOKE STREET WEST CITY: MONTREAL QUEBEC CANA STATE: A8 ZIP: 00000 FORMER COMPANY: FORMER CONFORMED NAME: ALUMINUM CO OF CANADA LTD DATE OF NAME CHANGE: 19870728 FORMER COMPANY: FORMER CONFORMED NAME: ALCAN ALUMINIUM LTD /NEW DATE OF NAME CHANGE: 19930519 10-Q 1 m07686e10vq.txt FORM 10-Q - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002 Commission file number 1-3677 ALCAN INC. (Exact name of registrant as specified in its charter) CANADA Inapplicable (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization)
1188 SHERBROOKE STREET WEST, MONTREAL, QUEBEC, CANADA H3A 3G2 (Address of Principal Executive Offices and Postal Code) (514) 848-8000 (Registrant's Telephone Number, including Area Code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] At June 30, 2002, the registrant had 321,256,890 shares of common stock (without nominal or par value) outstanding. - ------------------------------------------------------------------------------- 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 Inc. and, where applicable, one or more consolidated subsidiaries. ITEM 1. FINANCIAL STATEMENTS ALCAN INC. INTERIM CONSOLIDATED STATEMENT OF INCOME (unaudited)
PERIODS ENDED JUNE 30 Second Quarter Six Months (in millions of US$, except per share amounts) -------------------------- ----------------------- 2002 2001 2002 2001 ------ ------ ------ ------ (restated - note 2) (restated - note 2) SALES AND OPERATING REVENUES 3,199 3,162 6,136 6,432 COSTS AND EXPENSES Costs of sales and operating expenses 2,520 2,474 4,851 5,051 Depreciation and amortization 217 204 422 400 Selling, administrative and general expenses 142 138 281 271 Research and development expenses 27 34 55 67 Interest (note 12) 50 65 100 120 Restructuring, impairment and other special charges (note 5) 7 - 21 - Other expenses - net (notes 2 and 10) 43 54 50 122 ------ ------ ------ ------ 3,006 2,969 5,780 6,031 ------ ------ ------ ------ Income before income taxes and other items 193 193 356 401 Income taxes (note 8) 122 101 200 159 ------ ------ ------ ------ Income before other items 71 92 156 242 Equity income 2 1 3 3 Minority interests (2) (1) (2) - ------ ------ ------ ------ NET INCOME BEFORE AMORTIZATION OF GOODWILL 71 92 157 245 Amortization of goodwill (notes 2 and 7) - 18 - 36 ------ ------ ------ ------ NET INCOME 71 74 157 209 Dividends on preference shares 1 2 2 4 NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS 70 72 155 205 ------ ------ ------ ------ NET INCOME PER COMMON SHARE BEFORE AMORTIZATION OF GOODWILL - BASIC 0.22 0.28 0.48 0.75 Amortization of goodwill per common share - 0.05 - 0.11 ------ ------ ------ ------ NET INCOME PER COMMON SHARE - BASIC (NOTE 3) 0.22 0.23 0.48 0.64 ------ ------ ------ ------ NET INCOME PER COMMON SHARE - DILUTED (NOTE 3) 0.22 0.22 0.48 0.64 ------ ------ ------ ------ DIVIDENDS PER COMMON SHARE 0.15 0.15 0.30 0.30 ------ ------ ------ ------ The accompanying notes are an integral part of the interim financial statements.
2 ALCAN INC. INTERIM CONSOLIDATED STATEMENT OF RETAINED EARNINGS (unaudited)
SIX MONTHS ENDED JUNE 30 (in millions of US$) 2002 2001 ------ ------ RETAINED EARNINGS - BEGINNING OF PERIOD As previously reported 4,095 4,290 Accounting changes (note 2) - - Unamortized exchange loss (21) (18) - - Impairment of goodwill as at January 1, 2002 (748) - ------ ------ As restated 3,326 4,272 Net income 157 209 Dividends - - Common (96) (95) - - Preference (2) (4) ------ ------ RETAINED EARNINGS - END OF PERIOD 3,385 4,382 ====== ======= The accompanying notes are an integral part of the interim financial statements.
3 ALCAN INC. INTERIM CONSOLIDATED BALANCE SHEET (unaudited for 2002)
(in millions of US$) June 30, 2002 December 31, 2001 - -------------------- ------------- ----------------- (restated - note 2) ASSETS - ------ CURRENT ASSETS Cash and time deposits 121 119 Trade receivables (net of allowances of $58 in 2002 and $52 in 2001) 1,415 1,216 Other receivables 424 532 Inventories - Aluminum operating segments - Aluminum 919 875 - Raw materials 401 413 - Other supplies 289 269 ------- ------- 1,609 1,557 - Packaging operating segment 428 393 ------- ------- 2,037 1,950 ------- ------- TOTAL CURRENT ASSETS 3,997 3,817 ------- ------- Deferred charges and other assets 764 716 Property, plant and equipment - Cost (excluding Construction work in progress) 16,892 16,225 - Construction work in progress 666 613 - Accumulated depreciation (7,599) (7,136) ------- ------- 9,959 9,702 ------- ------- Intangible assets, net of accumulated amortization of $41 in 2002 and $27 in 2001 (note 7) 311 298 Goodwill (note 7) 2,285 2,925 ------- ------- TOTAL ASSETS 17,316 17,458 ======= ======= The accompanying notes are an integral part of the interim financial statements.
4 ALCAN INC. INTERIM CONSOLIDATED BALANCE SHEET (CONT'D) (unaudited for 2002)
(in millions of US$) June 30, 2002 December 31, 2001 - -------------------- -------------- ----------------- (restated - note 2) LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES Payables and accrued liabilities 2,336 2,328 Short-term borrowings 397 555 Debt maturing within one year (note 10) 678 652 ------- ------- 3,411 3,535 ------- ------- Debt not maturing within one year (note 10) 3,038 2,884 Deferred credits and other liabilities 1,253 1,131 Deferred income taxes 1,081 1,006 Minority interests 148 132 SHAREHOLDERS' EQUITY Redeemable non-retractable preference shares 160 160 Common shareholders' equity - Common shares 4,698 4,687 - Retained earnings 3,385 4,074 - Deferred translation adjustments 142 (151) ------- ------- 8,225 8,610 ------- ------- Commitments and contingencies (note 11) 8,385 8,770 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 17,316 17,458 ======= ======= The accompanying notes are an integral part of the interim financial statements.
5 ALCAN INC. INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
Second Quarter Six Months -------------------------- ----------------------- PERIODS ENDED JUNE 30 (in millions of US$) 2002 2001 2002 2001 ------ ------ ------ ------ (restated - note 2) (restated - note 2) OPERATING ACTIVITIES Net income 71 74 157 209 Adjustments to determine cash from operating activities: Depreciation and amortization 217 204 422 400 Amortization of goodwill - 18 - 36 Deferred income taxes 36 17 39 (10) Asset impairment provisions 9 - 9 - Loss on sale of businesses - 32 - 122 Change in operating working capital - Change in receivables 34 (28) 40 (81) - Change in inventories (9) (14) 23 (104) - Change in payables 5 (115) (87) (110) ---- ---- ---- ----- - Total change in operating working capital 30 (157) (24) (295) Change in deferred charges, other assets, deferred credits and other liabilities - net 40 36 64 (75) Other-net (3) 15 (9) 8 ---- ---- ---- ----- CASH FROM OPERATING ACTIVITIES 400 239 658 395 ==== ==== ==== ===== The accompanying notes are an integral part of the interim financial statements.
6 ALCAN INC. INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS (CONT'D) (unaudited)
Second Quarter Six Months -------------------------- ----------------------- PERIODS ENDED JUNE 30 (in millions of US$) 2002 2001 2002 2001 ------ ------ ------ ------ (restated - note 2) (restated - note 2) FINANCING ACTIVITIES New debt 51 584 182 1,819 Debt repayments (21) (316) (192) (1,306) ---- ---- ---- ------ 30 268 (10) 513 Short-term borrowings - net (49) (525) (176) (274) Common shares issued 4 44 10 57 Dividends - Alcan shareholders (including preference) (49) (49) (98) (99) - Minority interests (2) (1) (3) (1) ---- ---- ---- ------ CASH FROM (USED FOR) FINANCING ACTIVITIES (66) (263) (277) 196 ---- ---- ---- ------ INVESTMENT ACTIVITIES Property, plant and equipment (155) (253) (262) (497) Business acquisitions (172) (22) (172) (401) Net proceeds from disposal of businesses, investments and other assets 11 194 47 194 ---- ---- ---- ------ CASH USED FOR INVESTMENT ACTIVITIES (316) (81) (387) (704) Effect of exchange rate changes on cash and time deposits 7 (2) 8 (10) ---- ---- ---- ------ INCREASE (DECREASE) IN CASH AND TIME DEPOSITS 25 (107) 2 (123) Cash and time deposits - beginning of period 96 245 119 261 ---- ---- ---- ------ Cash and time deposits - end of period 121 138 121 138 ==== ==== ==== ==== The accompanying notes are an integral part of the interim financial statements.
7 ALCAN INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2002 (UNAUDITED) (in millions of US$, except per share amounts) 1. ACCOUNTING POLICIES The unaudited interim consolidated financial statements are based upon accounting policies and methods of their application consistent with those used and described in the Company's annual financial statements, except for the accounting changes described in note 2. The interim financial statements do not include all of the financial statement disclosures included in its annual financial statements prepared in accordance with Canadian generally accepted accounting principles (GAAP) and therefore should be read in conjunction with the most recent annual financial statements. 2. ACCOUNTING CHANGES Goodwill and Other Intangible Assets On January 1, 2002, the Company adopted the new standard of the Canadian Institute of Chartered Accountants (CICA) concerning goodwill and other intangible assets. Under this standard, goodwill and other intangible assets with an indefinite life are no longer amortized but are carried at the lower of carrying value and fair value. Goodwill and other intangible assets with an indefinite life are tested for impairment on an annual basis. An impairment of $748 was identified in the goodwill balance as at January 1, 2002 and was charged to opening retained earnings in 2002. Any further impairment arising subsequent to January 1, 2002 will be taken as a charge against income. As a result of the new standard, the Company no longer amortizes goodwill. In 2001, the amount of goodwill amortization for the second quarter and six months was $18 and $36, respectively. Business Combinations As of January 1, 2002, the Company has adopted the new standard of the CICA for business combinations. All business combinations are now required to be accounted for under the purchase method. Deferred Foreign Exchange Translation Gains and Losses As of January 1, 2002, the Company no longer amortizes the exchange gains and losses arising on the translation of long-term foreign currency denominated monetary assets and liabilities that have a fixed or ascertainable life extending beyond the end of the following fiscal year. These exchange gains and losses are now absorbed in income immediately. This standard has been applied retroactively and consequently, prior years' financial statements have been restated. At December 31, 2001, Retained earnings have been decreased by $21 (2000: $18) and Deferred charges and other assets were reduced by $21 (2000: $18). In the second quarter and six months of 2002, an exchange loss of $2 and $4 (2001: nil and $2), respectively, on the translation of long-term foreign currency denominated assets and liabilities, has been included in Other expenses - net. The transfer of an unamortized exchange loss of $21 (2000: $18) to Retained earnings from Deferred charges and other assets pertains to the long-term foreign currency denominated monetary assets and liabilities that existed at each year-end. 8 2. ACCOUNTING CHANGES (CONT'D) Stock-based Compensation The CICA issued a new standard relating to the measurement of stock options and other stock-based compensation effective January 1, 2002. This standard applies to awards granted after January 1, 2002 and is applied prospectively. Also, this standard encourages but does not require that the fair value method be used for transactions with employees. The method used by the Company is consistent with these new requirements; therefore, the Company is continuing to account for stock options granted to employees in the same manner as previously done. The Company will continue to provide the required disclosures in connection with the fair value method in its annual financial statements. Stock compensation arrangements that can be settled in cash result in the recognition of compensation expense. If the Company had elected to recognize compensation expense for the options using the fair value method prescribed by this accounting standard, net income would have been reduced by $1 for both the second quarter and six months ended June 30, 2002. There would have been no impact on net income per common share (basic and diluted) for both these periods. The fair values of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for the option grant in the first quarter: dividend yield of 1.74%; expected volatility of 34.49%, risk-free interest rate of 4.74%; and an expected life of 6 years. The weighted average fair value of options granted in the first quarter was $13.04 per share and is being amortized over the vesting period. Hedging Relationships Beginning in 2003, the Company will adopt the new CICA accounting guideline, which establishes certain conditions for when hedge accounting may be applied. The Company is studying the new guideline but has not yet determined its impact. 3. NET INCOME PER COMMON SHARE The following table outlines the calculation of basic and diluted net income per common share.
Second Quarter Six Months ---------------- --------------- 2002 2001 2002 2001 ----- ----- ----- ----- Numerator for basic and diluted net income per common share: Net income attributable to common shareholders (restated for 2001) 70 72 155 205 ===== ===== ===== ===== Denominator (number of common shares in millions): Denominator for basic net income per common share - weighted average of outstanding shares 321 320 321 319 Effect of dilutive stock options 2 1 2 1 ----- ------ ----- ----- Denominator for diluted net income per common share - adjusted weighted average of outstanding shares 323 321 323 320 ===== ====== ===== ===== Net income per common share - basic 0.22 0.23 0.48 0.64 ----- ------ ----- ----- Net income per common share - diluted 0.22 0.22 0.48 0.64 ----- ------ ----- -----
As at June 30, 2002, there were 321,256,890 (2001 : 320,791,232) common shares outstanding. 9 4. RECONCILIATION OF CANADIAN AND U.S. GAAP Differences relate to accounting for foreign currency translation, derivatives, post-retirement benefits, "available for sale" securities and goodwill impairment identified as at January 1, 2002. In 2001, the Company adopted the Financial Accounting Standards Board (FASB) Statements 133 and 138. These standards require that all derivatives be recorded in the financial statements and valued at market. However, the Company has elected not to adopt the FASB's optional hedge accounting provisions. Accordingly, for U.S. GAAP reporting purposes only, unrealized gains and losses resulting from the valuation of derivatives at market value are recognized in net income as the gains and losses arise and not concurrently with the recognition of the transactions being hedged. In its primary Canadian GAAP financial statements, the Company continues to recognize the gains and losses on derivative contracts in income concurrently with the recognition of the transactions being hedged. Upon initial adoption of the FASB standards in the first quarter of 2001, the cumulative effect of the accounting change resulted in a decrease in net income of $12. On January 1, 2002, the Company adopted FASB Statement 141, "Business Combinations", and FASB Statement 142, "Goodwill and Other Intangible Assets". Both statements are the same as recently issued Canadian accounting standards except that goodwill impairment identified as at January 1, 2002 was charged to income as a cumulative effect of accounting change. Under Canadian GAAP, an impairment loss of $748 was recognized as a charge to opening retained earnings in 2002. See note 2, Accounting Changes, for a description of the impact on the Company and see note 7, Goodwill and Acquired Intangible Assets. Beginning in 2002, the Company adopted FASB Statement 144, "Accounting for Impairment or Disposal of Long-lived Assets". This statement amends previous accounting and disclosure requirements for impairments and disposals of long-lived assets. The provisions of this new standard are generally to be applied prospectively. FASB has recently issued Statement 143, "Accounting for Asset Retirement Obligations", which will be effective for the Company's fiscal year beginning on January 1, 2003. The Company is studying this new standard but has not yet determined its impact. 10 4. RECONCILIATION OF CANADIAN AND U.S. GAAP (CONT'D) RECONCILIATION OF CANADIAN AND U.S. GAAP
Second Quarter Six Months ------------------ ------------------ 2002 2001 2002 2001 ----- ----- ----- ----- Net income - as reported 71 74 157 209 Differences due to: - Valuation of derivatives (13) 15 54 (34) - Other - 5 - 5 ----- ----- ----- ----- Net income from continuing operations before cumulative effect of accounting changes - U.S. GAAP 58 94 211 180 Cumulative effect on prior years of accounting changes - Valuation of derivatives - - - (12) - Impairment of goodwill - - (748) - ----- ----- ----- ----- Net income (loss) - U.S. GAAP 58 94 (537) 168 ----- ----- ----- ----- Net income attributable to common shareholders - as reported 70 72 155 205 ----- ----- ----- ----- Net income per common share - basic 0.22 0.23 0.48 0.64 Net income per common share - diluted 0.22 0.22 0.48 0.64 Net income attributable to common shareholders from continuing operations before cumulative effect of accounting changes - U.S. GAAP 57 92 209 176 ----- ----- ----- ----- Net income per common share - basic 0.18 0.29 0.65 0.55 Net income per common share - diluted 0.17 0.29 0.65 0.55 Net income (loss) attributable to common shareholders - U.S. GAAP 57 92 (539) 164 ----- ----- ------ ----- Net income (loss) per common share - basic 0.18 0.29 (1.68) 0.51 Net income (loss) per common share - diluted 0.17 0.29 (1.68) 0.51
The financial statements for the first quarter of 2002 were restated to reflect the charge of $748 for the impairment of goodwill. The restatement resulted in a net loss of $595 under U.S. GAAP for the first quarter (net loss per common share - basic and diluted - of $1.86).
AS AT JUNE 30 2002 2001 ------------- ------------------------- ------------------------ As As reported reported U.S. GAAP (restated) U.S. GAAP -------- --------- ------------ --------- Deferred charges and other assets 764 777 696 721 Intangible assets, net of accumulated amortization 311 329 303 303 Payables and accrued liabilities 2,336 2,337 2,226 2,288 Deferred credits and other liabilities 1,253 1,599 825 825 Deferred income taxes 1,081 973 1,148 1,123 Retained earnings 3,385 3,435 4,382 4,393 Deferred translation adjustments 142 86 (220) (277)
11 4. RECONCILIATION OF CANADIAN AND U.S. GAAP (CONT'D)
Second Quarter Six Months -------------------- ------------------ COMPREHENSIVE INCOME (LOSS) 2002 2001 2002 2001 ----- ---- ----- ---- Net income (loss) 58 94 (537) 168 Net change in unrealized deferred translation adjustments 278 (60) 286 (201) Net change in excess of market value over book value of available-for-sale securities 6 12 10 11 Net change in minimum liability for post-retirement benefits (77) - (77) - ---- ---- ----- ---- Comprehensive income (loss) 265 46 (318) (22) ==== ==== ===== ====
Six Months ----------------- ACCUMULATED OTHER COMPREHENSIVE LOSS 2002 2001 ---- ---- Accumulated other comprehensive loss - beginning of year (347) (61) Net change in unrealized deferred translation adjustments 286 (201) Deferred translation adjustments realized in net income 7 - Net change in excess of market value over book value of available-for-sale securities 10 11 Net change in minimum liability for post-retirement benefits (77) - ----- ----- Accumulated other comprehensive loss - June 30 (121) (251) ===== =====
As at June 30, 2002, Accumulated other comprehensive loss is comprised of deferred translation adjustments of $86, minimum pension liability of $(225) and unrealized gain on "available for sale" securities of $18. 12 5. RESTRUCTURING, IMPAIRMENT AND OTHER SPECIAL CHARGES Restructuring, impairment and other special charges of $657 pre-tax, which were recorded in the fourth quarter of 2001, included restructuring and asset impairment charges of $411 and other special charges of $246. Restructuring and asset impairment charges In the fourth quarter of 2001, the Company recorded charges of $411 pre-tax in Restructuring, impairment and other special charges as a result of a restructuring program aimed at safeguarding its competitiveness. The aim of the restructuring program was twofold: to make the businesses more competitive in the face of the current economic difficulties; and to put them in the best position to meet future industry needs. These aims will be achieved through cost reduction measures, exiting from non-core products and the consolidation of certain operations and will result in a series of plant sales, closures and divestments throughout the organization. The charges associated with this program consist of severance costs of $112 related to workforce reductions of approximately 2,200 employees, impairment of long-lived assets of $269 and other exit costs related to the shutdown of facilities of $30. The workforce reductions, which consist principally of manufacturing employees from all segments of the Company's worldwide operations, are comprised of: - 500 employees - Primary Metal (principally Canada) - 200 employees - Rolled Products, Americas and Asia - 400 employees - Rolled Products, Europe (U.K. and Switzerland) - 800 employees - Packaging (U.K., Canada, U.S. and other areas) - 300 employees - Other operating segments In the second quarter of 2002, the Company recorded additional severance charges of $14 pre-tax in Restructuring, impairment and other special charges principally relating to the closure of its Bracebridge plant in Ontario, Canada (part of Engineered Products). Included in the charge of $14 is a non-cash expense of $5 relating to pension costs. Corresponding workforce reductions of approximately 300 employees were comprised of 200 employees in Engineered Products (including 162 employees relating to the closure of the Bracebridge plant) and 100 employees in Packaging. Also recorded in Restructuring, impairment and other special charges in the second quarter of 2002 was a gain of $3 pre-tax on the sale of an investment. 13 5. RESTRUCTURING, IMPAIRMENT AND OTHER SPECIAL CHARGES (CONT'D) As at June 30, 2002, approximately 1,400 of a total of 2,500 employees had been terminated, consisting of approximately 400 employees in the fourth quarter of 2001 and 1,000 employees in the first six months of 2002. In the first quarter of 2002, the Company recorded charges of $14 pre-tax in Restructuring, impairment and other special charges related to the restructuring program. The charges consisted of impairment for long-lived assets of $9 related to the exit from non-core products at its Borgofranco plant in Italy (part of Rolled Products, Europe) and a loss of $5 on the sale of the Company's extrusion operations in Thailand arising principally from the realization of deferred translation losses. Total impairment charges of $278 consisted of a charge of $269 in 2001 and a charge of $9 in the first quarter of 2002 and related principally to buildings, machinery and equipment and some previously capitalized project costs. The charge consisted of $187 related to assets to be held and used and $91 for assets held for disposal. The impairment charge for assets to be held and used consisted of $5 for Bauxite, Alumina and Specialty Chemicals; $22 for Primary Metal; $14 for Rolled Products, Americas and Asia; $79 for Rolled Products, Europe; $3 for Engineered Products; $43 for Packaging; and $21 for Other. In the context of the Company's objective of value maximization, a detailed business portfolio review was undertaken to identify high cost operations, excess capacity and non-core products. The impairment charge for assets held and used arose as a result of negative projected cash flows and recurring losses. The charges principally related to the cold mill at the Rogerstone plant in the U.K. (Rolled Products, Europe); the foil facilities at Glasgow, U.K. (Packaging); and the engineered cast products plant in Quebec (Primary Metal). An impairment provision was recorded to the extent that the net recoverable amount, which approximates fair value based on discounted cash flows, was below the net book value. The impairment charge for assets held for disposal consisted of $40 for Bauxite, Alumina and Specialty Chemicals; $8 for Rolled Products, Americas and Asia; $31 for Rolled Products, Europe; and $12 for Packaging. In the context of the Company's objective of value maximization, a detailed business portfolio review was undertaken to identify high cost operations, excess capacity and non-core products. The charges principally related to the specialty chemicals plant at Burntisland, U.K. (Bauxite, Alumina and Specialty Chemicals); the extrusion operations in Malaysia and Thailand (Rolled Products, Americas and Asia); certain rolled products and recycling operations at the Pieve and Borgofranco plants in Italy (Rolled Products, Europe); and the Pharmatech rubber stopper and aluminum seals operations in the U.S. (Packaging). An impairment provision was recorded to bring the net book value to net realizable value. These assets are expected to be disposed of by the end of 2002. The assets held for disposal had: - sales and operating revenues of $290 in 2001 (Bauxite, Alumina and Specialty Chemicals - $40; Rolled Products, Americas and Asia - $30; Rolled Products, Europe - $90; Packaging - $130) and $64 and $140 in the second quarter and six months of 2002, respectively (Bauxite, Alumina and Specialty Chemicals - $9 and $19; Rolled Products, Americas and Asia - $3 and $13; Rolled Products, Europe - $24 and $50; and Packaging - $28 and $58). - net operating losses of $(20) in 2001 (Bauxite, Alumina and Specialty Chemicals - $(10); Packaging - $(10)) and $(4) and $(7) in the second quarter and six months of 2002, respectively (Bauxite, Alumina and Specialty Chemicals - $(3) and $(5); and Packaging $(1) and $(2)). - assets of $220 at December 2001 (Bauxite, Alumina and Specialty Chemicals - $20; Rolled Products, Americas and Asia - $20; Rolled Products, Europe - $100; Packaging - $80) and $190 at June 2002 (Bauxite, Alumina and Specialty Chemicals - $20; Rolled Products, Americas and Asia - $10; Rolled Products, Europe - $90; and Packaging - $70). 14 5. RESTRUCTURING, IMPAIRMENT AND OTHER SPECIAL CHARGES (CONT'D) - liabilities of $130 at December 2001 (Bauxite, Alumina and Specialty Chemicals - $20; Rolled Products, Americas and Asia - $10; Rolled Products, Europe - $30; Packaging - $70) and $130 at June 2002 (Bauxite, Alumina and Specialty Chemicals - $15; Rolled Products, Americas and Asia - $5; Rolled Products, Europe - $40; and Packaging - $70). The restructuring program is expected to be completed in 2002, with the exception of the shutdown of the cold mill at the Rogerstone plant in the U.K. in early 2003 and the closure of facilities at Glasgow, U.K. in mid-2003 as scheduled per the Company's plans. The closure plans include the orderly shutdown of facilities after existing customer requirements have been satisfied and in some situations, the transfer of production operations to other facilities. Of the reserve balance at June 30, 2002 of $105, approximately $13 will be paid out in 2003. The reserve balance and related cash payments for the restructuring and asset impairment charges consisted of :
IMPAIRMENT OF SEVERANCE LONG-LIVED COSTS ASSETS OTHER TOTAL --------- ---------- ------- ----- 2001: Charges 112 269 30 411 Cash payments (7) - (7) (14) Non-cash charges - (269) - (269) ---- ---- ---- ---- Reserve balance as at December 31 105 - 23 128 2002: Charges 14 9 2 25 Cash payments (28) - (4) (32) Non-cash charges (5) (9) (2) (16) ---- ---- ---- ---- Reserve balance as at June 30 86 - 19 105 ==== ==== ==== ====
Other Special Charges In 2001, the Company increased its environmental reserves by $246 pre-tax to cover treatment costs of $150 for stored spent potlining (SPL) in Quebec and British Columbia, Canada, as well as to cover remediation costs of $96 relating to red mud disposal and other sites in Canada and the United Kingdom. The charges were recorded on the income statement in Restructuring, impairment and other special charges and on the balance sheet, in Deferred credits and other liabilities ($235) and in Payables and accrued liabilities ($11). In the second quarter of 2002, a write-back of $4 pre-tax for a portion of the environmental reserve relating to spent potlining that is recoverable was recorded on the income statement in Restructuring, impairment and other special charges and on the balance sheet, in Other receivables. SPL, which is a waste material generated by the smelting process, needs to be treated in a safe and environmentally sound manner. The Company's objectives have been to find the best alternative to stockpiling SPL and various technical studies were carried out to identify treatment alternatives that are economically viable. Following these studies, which were completed in 2001, and in accordance with local laws and regulations, the Company intends to initiate a treatment program of all stored SPL. The liability of $150 reflected the Company's best estimate of the cost to treat the stored SPL in Quebec and to have the SPL in British Columbia treated by a third party. The amounts will be paid over the next twenty years. The liability of $96 relating to red mud and other disposal sites reflected the Company's best estimate of the cost of rehabilitation. Red mud is the normal residue associated with extracting alumina from bauxite. The charge represents the cost to fill and seal the sites. 15 6. INTERIM INFORMATION BY OPERATING SEGMENT The following presents selected information by operating segment, viewed on a stand-alone basis. Effective January 1, 2002, a new operating management structure was put in place comprised of six operating segments. The six operating segments are Bauxite, Alumina and Specialty Chemicals; Primary Metal; Rolled Products, Americas and Asia; Rolled Products, Europe; Engineered Products; and Packaging. Prior to 2002, there were four operating segments: Primary Metal; Aluminum Fabrication, Americas and Asia; Aluminum Fabrication, Europe; and Packaging. Comparative information has been restated to conform to the 2002 organizational structure. Transactions between operating segments are conducted on an arm's-length basis and reflect market prices. Thus, earnings from the Primary Metal group represent mainly profit on metal produced by the Company, whether sold to third parties or used in the Company's Rolled Products, Engineered Products and Packaging groups. Earnings from the Rolled Products, Engineered Products and Packaging groups represent only the fabricating profit on rolled, engineered and packaging products. The accounting principles used to prepare the information by operating segment are the same as those used to prepare the consolidated financial statements of the Company except that the pension costs for the operating segments are based on the normal current service cost with all actuarial gains, losses and other adjustments being included in Intersegment and other. Some corporate office and certain other costs have been allocated to the respective operating segments. The operating segments are described below. Bauxite, Alumina and Specialty Chemicals This segment consists of a network of bauxite mines/deposits in five countries and alumina refineries in four countries, which supplies the primary metal operations and third-party sales of alumina and specialty chemicals. Primary Metal This segment produces primary aluminum in seven countries. The alumina is sourced primarily from the Bauxite, Alumina and Specialty Chemicals segment and the ingot produced is used by the Company's fabricating businesses as well as sold to third-parties. The segment produces value-added products in the form of sheet ingot, extrusion billet, wire bar and foundry ingot for end-use markets in consumer goods, transportation, building and construction and other industrial applications. Rolled Products, Americas and Asia This segment, which has an extensive network of 17 rolled products facilities in North and South America and Asia, manufactures sheet and light-gauge products, including can stock, automotive sheet and industrial products. In addition the segment has a well-established used beverage can recycling capability in North and South America. Rolled Products, Europe This segment has nine rolled products plants and serves a number of European markets with advanced value-added sheet products, including automotive sheet, lithographic sheet, industrial sheet, can sheet and foil stock. Engineered Products This segment develops, manufactures and sells value-added engineered products for a variety of applications, including extrusions, composites, systems and components for mass transportation and automotive applications and electrical cables. Packaging This segment has 84 plants in 15 countries and is focused on serving specific end-use markets: food, pharmaceutical, tobacco, cosmetics and some technical applications. Intersegment and other This classification includes the deferral or realization of profits on intersegment sales of aluminum as well as other non-operating items. 16 6. INTERIM INFORMATION BY OPERATING SEGMENT (CONT'D) PERIODS ENDED JUNE 30
SALES AND OPERATING REVENUES - INTERSEGMENT Second Quarter Six Months ------------------ ---------------------- 2002 2001 2002 2001 ----- ----- ------- ----- Bauxite, Alumina and Specialty Chemicals 187 207 374 389 Primary Metal 575 576 1,115 1,196 Rolled Products, Americas and Asia 42 47 90 96 Rolled Products, Europe 83 80 153 192 Engineered Products 3 (5) 9 10 Packaging 6 17 11 34 Intersegment and other (896) (922) (1,752) (1,917) ----- ----- ------ ------ - - - - ===== ===== ====== ======
SALES AND OPERATING REVENUES - THIRD PARTIES Second Quarter Six Months ------------------ ---------------------- 2002 2001 2002 2001 ----- ----- ------- ----- Bauxite, Alumina and Specialty Chemicals 111 113 212 253 Primary Metal 615 592 1,176 1,168 Rolled Products, Americas and Asia 857 855 1,639 1,728 Rolled Products, Europe 474 452 885 947 Engineered Products 430 424 828 863 Packaging 698 720 1,372 1,461 Other 14 6 24 12 ----- ----- ------ ------ 3,199 3,162 6,136 6,432 ===== ===== ====== =====
EBITDA Second Quarter Six Months ------------------- --------------------- 2002 2001 2002 2001 ----- ----- ------ ----- Bauxite, Alumina and Specialty Chemicals 63 79 127 179 Primary Metal 211 208 425 457 Rolled Products, Americas and Asia 94 76 186 162 Rolled Products, Europe 35 39 65 77 Engineering Products 27 24 54 58 Packaging 93 92 169 178 ----- ----- ----- ----- EBITDA from operating segments 523 518 1,026 1,111 Depreciation and amortization (217) (204) (422) (400) Restructuring, impairment and other special charges (7) - (21) - Intersegment and other (28) (37) (74) (155) Corporate office (26) (18) (50) (32) Interest (50) (65) (100) (120) Income taxes (122) (101) (200) (159) Minority interests (2) (1) (2) - ----- ----- ----- ----- NET INCOME BEFORE AMORTIZATION OF GOODWILL 71 92 157 245 ----- ----- ----- ----- NET INCOME AFTER AMORTIZATION OF GOODWILL 71 74 157 209 ----- ----- ----- -----
17 7. GOODWILL AND ACQUIRED INTANGIBLE ASSETS GOODWILL The changes in the carrying amount of goodwill for the period ended June 30, 2002, are as follows:
Balance Balance as at as at January 1, Impairment June 30, 2002 losses Exchange 2002 ----------- ---------- -------- -------- Bauxite, Alumina and Specialty Chemicals 543 - - 543 Primary Metal 426 - 33 459 Rolled Products, Europe 163 163 - - Engineered Products 466 321 12 157 Packaging 1,306 264 63 1,105 Other 21 - - 21 ----------- ---------- -------- -------- Total 2,925 748 108 2,285 =========== ========== ======== ========
There were no additions to goodwill in the six month period ended June 30, 2002. The Company completed a review to determine whether, at January 1, 2002, there was impairment in the goodwill balance. As a result of this review, an impairment loss of $748 was recognized as a charge to opening retained earnings in 2002. The adjustment reflects the decline in end-market conditions in the period from the algroup merger in October 2000 to January 1, 2002. The fair value of all reporting units was determined using discounted future cash flows. In 2001, changes in the carrying amount of goodwill for the year ended December 31, 2001 were as follows: Goodwill, net of accumulated amortization of $17 as at January 1, 2001 2,669 - Additions 394 - Exchange (62) - Amortization (73) - Amount related to disposal of business (3) ----- Goodwill, net of accumulated amortization of $92 as at December 31, 2001 2,925 =====
ACQUIRED AMORTIZED INTANGIBLE ASSETS
June 30, 2002 December 31, 2001 -------------------------------------- -------------------------------------- Gross Net Gross Net Carrying Accumulated Book Carrying Accumulated Book Amount Amortization Value Amount Amortization Value -------- ------------ ----- -------- ------------ ----- Trademarks 138 16 122 127 11 116 Patented and non-patented technology 214 25 189 198 16 182 -------- ------------ ----- -------- ------------ ----- Total 352 41 311 325 27 298 ======== ============ ===== ======== ============ =====
18 7. GOODWILL AND ACQUIRED INTANGIBLE ASSETS (CONT'D) The aggregate amortization expenses for the second quarter and six months ended June 30, 2002 were $6 and $11 (excluding deferred translation gains of nil and $3), respectively. The estimated amortization expense for the five succeeding fiscal years is approximately $22 per year. There were no acquisitions of intangible assets in the six month period ended June 30, 2002. GOODWILL AND OTHER INTANGIBLE ASSETS
For periods ended June 30 Second Quarter Six Months -------------------------- ---------------------- 2002 2001 2002 2001 ------ ----- ---- ---- Reported net income 71 74 157 209 Add : Goodwill amortization - 18 - 36 ------ ----- ---- ---- Adjusted net income 71 92 157 245 ====== ===== ==== ==== Basic earnings per share: Reported net income 0.22 0.23 0.48 0.64 Goodwill amortization - 0.05 - 0.11 ------ ----- ---- ---- Adjusted net income 0.22 0.28 0.48 0.75 ====== ===== ==== ==== Diluted earnings per share: Reported net income 0.22 0.22 0.48 0.64 Goodwill amortization - 0.05 - 0.11 ------ ----- ---- ---- Adjusted net income 0.22 0.27 0.48 0.75 ====== ====== ===== ====
8. INCOME TAXES
Second Quarter Six Months -------------------------- ---------------------- 2002 2001 2002 2001 ---- ---- ---- ---- Current 86 84 161 169 Deferred 36 17 39 (10) ---- ---- ---- ---- 122 101 200 159 ==== ==== ==== ====
The composite of the applicable statutory corporate income tax rates in Canada is 39.4% (40.1% for 2001). The difference between income taxes calculated at the Canadian composite rate and the amounts shown as reported is primarily attributable to exchange. In 2001, the difference is primarily attributable to lower tax rates in foreign jurisdictions and reduced rate or tax-exempt items, partially offset by the impact of potential future tax benefits that were not recognized since their realization is not likely. 9. SUPPLEMENTARY INFORMATION
STATEMENT OF CASH FLOWS Second Quarter Six Months ----------------------- -------------------------- ---------------------- 2002 2001 2002 2001 ---- ---- ---- ---- Interest paid 61 98 118 161 Income taxes paid 112 126 65 159
19 10. LONG TERM DEBT On January 15, 2002, the Company redeemed all of its outstanding 8.875% $150 debentures originally due on January 15, 2022. The redemption was at a price of 104.15%. A loss of $6 was recorded in Other expenses - net in the first quarter of 2002. The new debt of $51 and $182 in the second quarter and six months of 2002, respectively, principally relates to an increase in commercial paper borrowings. 11. COMMITMENTS AND CONTINGENCIES In 1997, as part of the claim settlement arrangements related to the British Columbia Government's cancellation of the Kemano Completion Project, the Company obtained the right to transfer a portion of a power supply contract with BC Hydro to a third party. The Company sold the right to supply this portion to Enron Power Marketing Inc. (EPMI), a subsidiary of Enron Corporation (Enron) for cash consideration. In order to obtain the consent of BC Hydro to this sale, the Company was required to retain a residual obligation for EPMI's performance of the power supply contract in the event that EPMI became unable to perform. This contingent obligation is subject to a maximum aggregate amount of $100, with mitigation and subrogation rights. On December 2, 2001, EPMI and Enron filed for protection under Chapter 11 of the U.S. Bankruptcy Code. Powerex Corp., the BC Hydro affiliate which now holds the rights to the portion of the power supply contract transferred to EPMI, maintains that it has terminated the power supply contract and as result has filed a claim for $100 against Enron on March 15, 2002 as a necessary step prior to making the same claim against the Company. Neither Enron nor EPMI responded to that claim and the Company received, on March 22, 2002, a demand for payment in the amount of $100 from Powerex Corp. The Company disputes its obligation to pay on the demand by Powerex Corp. and is currently defending itself in an arbitration initiated by Powerex Corp. with a hearing date scheduled for December 2002. The Company is unable to estimate reasonably the amount of the contingent loss which might arise in respect of this matter and is contesting the claim on substantive and procedural grounds as well as by reason of inadequate mitigation efforts. In any event, the Company is of the view that any residual obligations, which it may have as a result of its assignment of the power supply agreement to EPMI in 1997 would relate to the supply of power and not be in the form of a financial obligation. Alcan, in the course of its operations, is subject to environmental and other claims, lawsuits and contingencies. The Company has environmental contingencies relating to approximately 30 existing and former Alcan sites and third-party sites. Accruals have been made in specific instances where it is probable that liabilities will be incurred and where such liabilities can be reasonably estimated. Although it is possible that liabilities may arise in other instances for which no accruals have been made, the Company does not believe that such an outcome will significantly impair its operations or have a material adverse effect on its financial position. 12. CAPITALIZATION OF INTEREST COSTS Total interest costs in the second quarter and six months of 2002 were $50 and $100 respectively (2001: $73 and $148) of which none were capitalized in 2002 (2001: $8 and $28). 13. ACQUISITION OF A 20% INTEREST IN THE ALUMINERIE ALOUETTE CONSORTIUM On April 24, 2002, the Company announced that it had completed the acquisition of the Societe generale de financement (SGF) 20% interest in the Aluminerie Alouette consortium at a cost of approximately $172, subject to post-closing adjustments. The Company is in the process of determining the allocation of the purchase price in the accounts to the fair values of the assets acquired and liabilities assumed. 20 14. PRIOR PERIOD AMOUNTS Certain prior period amounts have been reclassified to conform with the 2002 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. 21 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The Company reported second quarter earnings per share, excluding non-recurring items and foreign currency balance sheet translation effects, of US$0.46 per share compared to US$0.41 per share in the second quarter of 2001 and US$0.33 per share in the first quarter of 2002. Including non-recurring items and foreign currency balance sheet translation effects, net income under Canadian generally accepted accounting principles (GAAP) for the quarter was US$0.22 per share compared to US$0.23 per share in the second quarter of 2001 and US$0.26 per share in the previous quarter. With aluminum prices unchanged from the first quarter, the Company's higher operating earnings were a direct result of its continued focus on cost control and improving volumes, while cash flows also reflected continued financial discipline. The results for the second quarter of 2002 included a net non-recurring after-tax charge of US$8 million (US$0.03 per share) which related mainly to the restructuring program announced on October 17, 2001. The current quarter also included an after-tax US$70 million loss (US$0.21 per share) for foreign currency balance sheet translation effects resulting principally from the strengthening of the Canadian and Australian currencies against the U.S. dollar. Non-recurring after-tax charges and foreign currency balance sheet translation effects were US$54 million (US$0.18 per share) in the year-ago quarter and US$21 million (US$0.07 per share) in the first quarter of 2002. For the first six months of 2002, net income per share under GAAP was US$0.48 compared to US$0.64 for the comparable period of 2001. Excluding non-recurring items and foreign currency balance sheet translation effects, earnings per share were US$0.79 compared to US$0.91 during the first six months of 2001. 22 CONSOLIDATED REVIEW
SECOND QUARTER SIX MONTHS FIRST QUARTER ------------------ ---------------- ------------- (US$ millions, unless otherwise noted) 2002 2001 2002 2001 2002 ----- ----- ---- ----- ----- Sales & operating revenues 3,199 3,162 6,136 6,432 2,937 Shipments (thousands of tonnes) Ingot products1 359 342 674 653 315 Rolled products 528 493 1,025 1,012 497 Conversion of customer-owned metal 95 87 170 178 75 Aluminum used in engineered products & packaging 152 129 278 300 126 Total aluminum volume 1,134 1,051 2,147 2,143 1,013 Ingot product realizations (US$ per tonne) 1,536 1,628 1,518 1,651 1,497 Rolled product realizations (US$ per tonne)2 2,311 2,409 2,278 2,427 2,250 Average London Metal Exchange 3-month price (US$ per tonne) 1,377 1,511 1,386 1,536 1,395 Net income excluding non-recurring items and foreign currency balance sheet translation 149 128 256 291 107 Non-recurring items (8) (17) (15) (87) (7) Foreign currency balance sheet translation (70) (37) (84) 5 (14) Net income including non-recurring items and foreign currency balance sheet translation 71 74 157 209 86 Economic Value Added (EVA(R)) (167) (110) (365) (158) (198) 1 Includes primary and secondary ingot and scrap, as well as shipments resulting from metal trading activities 2 Excluding conversion of customer owned metal (R)EVA is a registered trademark of Stern, Stewart & Company
Largely as a result of higher volumes in most business segments, sales and operating revenues for the quarter increased by 1% compared to the year-ago quarter, despite significantly lower LME aluminum prices. As compared to the previous quarter, both higher shipments in all areas and slightly higher ingot and rolled product prices contributed to the increase in sales and operating revenues. Total aluminum volume was 1,134 thousand tonnes (kt) in the quarter, compared to 1,051 kt a year earlier and to 1,013 kt in the preceding quarter. Year over year, the additional volume was from the new smelter in Alma, Quebec and the Company's newly acquired 20% interest in the Alouette smelter, also in Quebec. As compared to the previous quarter, the increase in volume was mainly due to additional metal purchased for resale and production from the Alouette smelter. Ingot product realizations of US$1,536 per tonne fell by 6% from the year-ago quarter in line with a 9% decrease in the London Metal Exchange (LME) price. Compared to the previous quarter, ingot product realizations increased by 3% versus a 1% decrease in the LME price. Rolled product realizations of US$2,311 per tonne were 4% lower than the year-ago quarter and 3% above the previous quarter. 23 For the quarter, the net income under GAAP of US$71 million compares to a net income of US$74 million in the year-ago quarter and to US$86 million in the previous quarter. The comparable results to the year-ago quarter were primarily due to improvements from the Company's restructuring and merger-related synergies programs, higher volumes, lower interest expense and the absence of goodwill amortization, offset by lower LME related ingot product realizations and the unfavourable effects of foreign currency balance sheet translation. As compared to the previous quarter, the US$15 million decrease was a result of higher volumes that were more than offset by the unfavourable effects of foreign currency balance sheet translation. In 2002, the Company adopted the new accounting standard dealing with goodwill. As a result of this change in accounting, goodwill is no longer being amortized. This had a positive impact of US$0.05 per share in the second quarter and US$0.06 per share in the previous quarter. Also under this standard, the Company completed a review of goodwill and recorded an impairment charge of US$748 million as a reduction in opening retained earnings as of January 1, 2002. The adjustment reflects the decline in end-market conditions in the period from the algroup merger in October 2000 to January 1, 2002. This adjustment will have no impact on the future growth of the Company, nor will it affect its cash flow. SEGMENT REVIEW
SECOND QUARTER SIX MONTHS FIRST QUARTER ---------------- ----------------- ------------- (US$ millions) 2002 2001 2002 2001 2002 ---- ---- ---- ---- ---- EBITDA Bauxite, Alumina and Specialty Chemicals 63 79 127 179 64 Primary Metal 211 208 425 457 214 Rolled Products, Americas and Asia 94 76 186 162 92 Rolled Products, Europe 35 39 65 77 30 Engineered Products 27 24 54 58 27 Packaging 93 92 169 178 76 EBITDA from operating segments 523 518 1,026 1,111 503 Depreciation & amortization (217) (204) (422) (400) (205) Restructuring, impairment and other special charges (7) - (21) - (14) Intersegment and other (28) (37) (74) (155) (46) Corporate offices (26) (18) (50) (32) (24) Interest (50) (65) (100) (120) (50) Income taxes (122) (101) (200) (159) (78) Minority interests (2) (1) (2) - - Net income before goodwill amortization 71 92 157 245 86 Net income after goodwill amortization 71 74 157 209 86
Second quarter earnings before interest, taxes, depreciation and amortization (EBITDA) for Bauxite, Alumina and Specialty Chemicals were lower than in the previous year, reflecting lower selling prices for alumina and bauxite and the divestiture of Jamaican operations, partially offset by lower production costs. EBITDA of US$63 million was unchanged from the preceding quarter. For Primary Metal, EBITDA of US$211 million increased slightly compared to the year-ago quarter due mainly to lower costs, better performance at the Alma smelter, as well as the addition of Alouette. These were largely offset by lower LME related ingot prices and the unfavourable effects of foreign currency balance sheet translation. Compared to the preceding quarter, EBITDA was 24 essentially unchanged as higher volumes and prices were offset by the unfavourable effects of foreign currency balance sheet translation. EBITDA for Rolled Products, Americas and Asia, at US$94 million, was 24% higher than in the previous year largely as a result of higher volumes in North America and Asia along with the effective implementation of ongoing cost reduction initiatives. Compared to the preceding quarter, EBITDA increased by 2% driven by volume increases in North America and Asia which more than offset the time lag in passing the change in metal prices to certain customers. For Rolled Products, Europe, EBITDA at US$35 million was US$4 million lower than in the previous year. Beneficial effects of higher shipments and a stronger Euro were offset by metal valuation losses and higher wage settlements. Compared to the first quarter of 2002, EBITDA increased by US$5 million, due mainly to higher shipments and the strengthening Euro. EBITDA for Engineered Products of US$27 million was US$3 million higher than in the previous year, with no change compared to the first quarter of 2002. Packaging Group EBITDA of US$93 million was slightly improved over the same quarter in 2001 when market conditions were more robust, but represented a significant improvement over the US$76 million reported in the previous quarter. The improvement was driven both by recovering business volumes following the downturn of the last 3 quarters, the ramp-up of benefits from restructuring, other cost reduction programs and merger synergies, as well as a stronger Euro. Depreciation and amortization of US$217 million was 6% higher than the year-ago quarter largely due to the Alma smelter which reached full capacity during the fourth quarter of 2001, as well as the acquisition of a 20% interest in the Alouette smelter. As compared to the previous quarter, depreciation and amortization was also 6% higher, partly due to the addition of Alouette. The "Restructuring, impairment and other special charges" consisted mainly of provisions for a portion of the restructuring program announced in the fourth quarter of 2001, relating specifically to the closure of the Bracebridge cable plant in Ontario, Canada. "Intersegment and other" includes the deferral or realization of profits on intersegment sales of aluminum as well as other non-operating items. The Company's effective tax rate was 36% in the second quarter and 38% for the first half of 2002, excluding the effects of non-recurring items and foreign currency balance sheet translation. LIQUIDITY AND CAPITAL RESOURCES OPERATING ACTIVITIES Cash generated from operating activities during the first six months of 2002 was US$658 million compared to US$395 million in the comparable period of 2001. The improvement was due largely to tighter controls on working capital. FINANCING ACTIVITIES Cash from (used for) financing activities in the first six months of 2002 was US$(277) million compared to US$196 million in the same period in 2001. A net amount of US$186 million of debt was repaid during the period, including the redemption, in the first quarter, of the 8.875% US$150 million debentures that were originally due on January 15, 2022. Debt as a percent of invested capital at June 30, 2002 was 33%, compared to 32% at the end of the first quarter (restated to reflect the impact of the impairment of goodwill) and 34% at the end of the second quarter of 2001. 25 Interest expense, at US$50 million, decreased by US$15 million compared to the previous year reflecting lower interest rates and debt levels, partially offset by the fact that no interest was capitalized during the current quarter. Interest expense was the same as in the previous quarter. INVESTMENT ACTIVITIES Capital expenditures during the first six months of 2002 were US$262 million compared to US$497 million a year earlier. Capital expenditures were lower principally due to the completion of the Alma smelter, which reached full operation on September 30, 2001. Capital expenditures were considerably lower than depreciation expense for the second quarter and first six months of 2002. While the spending rate is expected to accelerate somewhat in the second half of the year, capital expenditures for the full year are expected to be below depreciation expense. During the first six months of 2002, the Company received US$47 million (US$36 million in the first quarter) as net proceeds from the disposal of businesses, investments and other assets, including the sale of three company-owned ships and the sale of businesses which were announced in the fourth quarter of 2001 following a detailed portfolio review. On April 24, 2002, the Company completed the acquisition of the Societe generale de financement (SGF) 20% interest in the Aluminerie Alouette Consortium at a cost of approximately US$172 million, subject to post-closing adjustments. The Company is in the process of determining the allocation of the purchase price in the accounts to the fair values of the assets acquired and liabilities assumed. Alouette is a first-class aluminum smelter located in Sept-Iles, Quebec with an annual capacity of 243,000 tonnes with a significant low-cost expansion potential. CURRENCY HEDGING OF AUSTRALIAN DOLLAR At June 30, 2002, the Company has hedged AUD $717 million of its future Australian dollar commitments in respect of its Australian dollar exposure, through forward exchange contracts and options maturing over the next two years. CAUTIONARY STATEMENT Readers are cautioned that forward looking statements contained in this Management's Discussion and Analysis should be read in conjunction with "Cautionary Statements for Purposes of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995" at Exhibit No. 99. 26 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 (3.1) Amendments to the Articles (3.2) Amendments to By-Law No. 1A (4) Re-Confirmation of the Shareholder Rights Plan (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 No reports were filed during the quarter ended 30 June 2002. 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 INC. Dated: August 14, 2002 By: /s/ Glenn R. Lucas ------------------------ Glenn R. Lucas Vice President and Treasurer (A Duly Authorized Officer)
27 EXHIBIT INDEX
Exhibit Number Description (3.1) Amendments to the Articles (3.2) Amendments to By-Law No. 1A (4) Re-Confirmation of the Shareholder Rights Plan (99) Cautionary statement for purposes of the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995. (Filed herewith.)
28 EX-3.1 3 m07686exv3w1.txt AMENDMENTS TO THE ARTICLES EXHIBIT NO. 3.1: AMENDMENTS TO THE ARTICLES By a special resolution of the Shareholders of the Company adopted at the Annual Meeting of Shareholders held on 25 April 2002, the Articles of the Company were amended by adding the following in item 7 thereof: "Meetings of Shareholders shall be held at such place within Canada as the Directors of the Corporation may determine, or outside of Canada, if so determined by the Directors, in New York City, United States of America, or in London, England, or in Zurich, Switzerland". 29 EX-3.2 4 m07686exv3w2.txt AMENDMENTS TO BY-LAW NO. 1A EXHIBIT NO. 3.2: AMENDMENTS TO BY-LAW NO. 1A The following amendments by the Board of Directors to By-Law No. 1A replacing Sections 1.01 - Meetings, 1.02 - Notice of Meetings, 1.06 - Voting, 2.03 - Meetings of Directors and Notices, 2.04 - Quorum, 2.08 - Participation in their entirety were approved by a resolution of the Shareholders of the Company adopted at the Annual Meeting of Shareholders held on 25 April 2002, as follows: "SECTION 1.01 - MEETINGS. The Directors shall call an annual meeting of Shareholders not later than 15 months after the holding of the last preceding annual meeting and may at any time call a special meeting of Shareholders. Meetings shall be held at such place as the Directors may determine. Failing any determination as to the location of the meeting by the Directors, the meeting shall take place in the city of Montreal. Meetings shall be held at such time as the Directors may determine. Any person entitled to attend a meeting of Shareholders shall be entitled to attend the meeting by means of a telephonic, electronic or other communication facility, and a meeting of Shareholders may be held by telephonic, electronic or other communication facility, unless the Directors otherwise determine and provided that the Chairman is satisfied that all Shareholders will be able to communicate adequately with each other during such meeting. Any person participating in a meeting by telephonic, electronic or other communication facility shall be deemed present at the meeting for all purposes. SECTION 1.02 - NOTICE OF MEETINGS. Notice of time and place of each meeting of Shareholders shall be given by sending the notice to each Shareholder entitled to vote at the meeting, not less then 21 nor more then 60 days before the date of the meeting. Any notice, communication or document to be given by the Corporation pursuant to the Canada Business Corporations Act, the Articles, the By-laws or otherwise, to a Shareholder, Director, officer or auditor shall be sufficiently given if delivered personally to the person to whom it is to be given, or if delivered to his recorded address, or if mailed by prepaid mail addressed to him at his recorded address. In addition to the foregoing, any such notice, communication or document required to be given may instead be delivered by the Corporation in an electronic or other technologically enhanced format, provided that the requirements of the applicable law in respect of such delivery have been complied with in all respects, including, where required, receipt by the Corporation of the prior consent of the recipient to the delivery of such notice, communication or document in electronic or other technologically enhanced format and the designation by the recipient of the information system for receipt thereof. The accidental failure to give notice of a meeting of Shareholders to any person entitled thereto or any error in such notice not affecting the substance thereof shall not invalidate any action taken at the meeting. SECTION 1.06 - VOTING. Voting at every meeting of Shareholders shall be by a show of hands except where, either before or after a show of hands, a ballot is required by the chairman of the meeting or is demanded by any person present and entitled to vote at the meeting. Any vote may be held, in accordance with the laws and regulations governing the Corporation, by means of a telephonic, electronic or other communication facility, provided the Corporation makes available such a communication facility. SECTION 2.03 - MEETINGS OF DIRECTORS AND NOTICES. Meetings of the Directors may be called at any time by or by order of the Chairman of the Board, the Vice Chairman of the Board if one is in office, the President or any two Directors, and may be held at the registered office of the Corporation, or at any other place determined by the Directors. Notice specifying the place and time of each such meeting shall be delivered to each Director or left at his usual residence or usual place of business, or shall be mailed, sent by telefax or in an electronic or other technologically enhanced format at least 72 hours prior to the time fixed for such meeting. Notice of any meeting or any irregularity in any meeting or the notice thereof may be waived by any Director either before or after the meeting is held. In conjunction with the annual meeting of Shareholders each year, the Directors shall meet to appoint the officers of the Corporation and to transact such other business as may come before the meeting. 30 SECTION 2.04 - QUORUM. The Directors may from time to time fix the quorum for meetings of Directors, but unless so fixed, five Directors shall constitute a quorum. SECTION 2.08 - PARTICIPATION. Subject to the laws governing the Corporation, any Director may, if all of the Directors consent, participate at any meeting of Directors or of a committee of Directors by means of a telephonic, electronic or other communication facility that permits all participants to communicate with each other during the meeting. In the case of any such participation at any such meeting, each such Director so participating shall be deemed to be present at such meeting and such meeting shall be deemed to be held at the place specified in the notice calling such meeting or in the waiver thereof and, in the absence of any such specification, at the place where or from which the chairman of the meeting shall have presided." 31 EX-4 5 m07686exv4.txt RE-CONFIRMATION OF THE SHAREHOLDER RIGHTS PLAN EXHIBIT NO. 4: RE-CONFIRMATION OF THE SHAREHOLDER RIGHTS PLAN The Shareholder Rights Plan included in the Shareholder Rights Agreement made as of 14 December 1989, between the Company and CIBC Mellon Trust Company, as amended, (as summarized in Schedule D of the Management Proxy Circular dated 6 March 2002), was re-confirmed by a resolution of the Shareholders of the Company adopted at the Annual Meeting of Shareholders held on 25 April 2002. 32 EX-99 6 m07686exv99.txt CAUTIONARY STATEMENT PLAN EXHIBIT NO. 99: CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Written or oral statements made by Alcan or its representatives, including statements set forth in Alcan's Form 10-Q for the quarter ended June 30, 2002, 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. 33 -----END PRIVACY-ENHANCED MESSAGE-----