<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
Commission file number 1-3677
ALCAN ALUMINIUM LIMITED
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
CANADA Inapplicable
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
</TABLE>
1188 SHERBROOKE STREET WEST, MONTREAL, QUEBEC, CANADA H3A 3G2
(Address of Principal Executive Offices and Postal Code)
(514) 848-8000
(Registrant's Telephone Number, including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes ___X____ No _______
At June 30, 1998, the registrant had 227,538,313 shares of common stock
(without nominal or par value) outstanding.
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<PAGE> 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)
<TABLE>
<CAPTION>
Periods ended June 30
(in millions of US$,
except per share amounts) Second quarter Six months
---------------- ----------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
REVENUES
Sales and operating revenues..... $1,986 $2,011 $3,939 $3,881
Other income..................... 19 19 37 47
------ ------ ------ ------
2,005 2,030 3,976 3,928
------ ------ ------ ------
COSTS AND EXPENSES
Cost of sales and operating
expenses........................ 1,549 1,552 3,046 3,002
Depreciation..................... 113 110 223 217
Selling, administrative and
general expenses............... 113 115 217 218
Research and development
expenses....................... 17 18 34 34
Interest......................... 21 26 44 51
Other expenses................... 8 19 18 29
------ ------ ------ ------
1,821 1,840 3,582 3,551
------ ------ ------ ------
Income before income taxes
and other items................. 184 190 394 377
Income taxes (note 3)............ 76 72 154 117
------ ------ ------ ------
Income before other items........ 108 118 240 260
Equity income (loss)............. (23) (1) (39) 2
Minority interests............... 1 (1) 2 (3)
------ ------ ------ ------
NET INCOME....................... $ 86 $ 116 $ 203 $ 259
Dividends on preference shares... 2 2 5 5
------ ------ ------ ------
NET INCOME ATTRIBUTABLE
TO COMMON SHAREHOLDERS.......... $ 84 $ 114 $ 198 $ 254
------ ------ ------ ------
</TABLE>
2
<PAGE> 3
ALCAN ALUMINIUM LIMITED
<TABLE>
INTERIM CONSOLIDATED STATEMENT OF INCOME (cont'd)
(unaudited)
<CAPTION>
Periods ended June 30
(in millions of US$,
except per share amounts) Second quarter Six months
-------------- --------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET INCOME PER COMMON
SHARE (NOTE 4)................. $0.37 $0.50 $0.87 $1.12
----- ----- ----- -----
DIVIDENDS PER COMMON SHARE...... $0.15 $0.15 $0.30 $0.30
----- ----- ----- -----
</TABLE>
<TABLE>
INTERIM CONSOLIDATED STATEMENT OF INCOME
(unaudited)
<CAPTION>
Six months ended June 30
(in millions of US$) 1998 1997
---- ----
<S> <C> <C>
RETAINED EARNINGS - BEGINNING OF PERIOD
As previously reported............................ $ 3,556 $ 3,217
Accounting change (note 1)........................ 306 -
------- -------
AS RESTATED....................................... 3,862 3,217
Net income........................................ 203 259
Dividends - Common................................ 68 68
- Preference............................ 5 5
------- -------
RETAINED EARNINGS - END OF PERIOD................. $ 3,992 $ 3,403
------- -------
</TABLE>
3
<PAGE> 4
ALCAN ALUMINIUM LIMITED
INTERIM CONSOLIDATED BALANCE SHEET
(unaudited for 1998)
<TABLE>
<CAPTION>
(in millions of US$) June 30 December 31
1998 1997
------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and time deposits................... $ 440 $ 608
Receivables.............................. 1,415 1,292
Inventories
Aluminum............................... 784 800
Raw materials.......................... 315 307
Other supplies......................... 236 234
------- -------
1,335 1,341
------- -------
Total current assets...................... 3,190 3,241
------- -------
Deferred charges and other assets......... 447 424
Investments............................... 155 251
Property, plant and equipment
Cost..................................... 11,948 11,715
Accumulated depreciation................. 6,439 6,257
------- -------
5,509 5,458
------- -------
TOTAL ASSETS.............................. $ 9,301 $ 9,374
------- -------
</TABLE>
4
<PAGE> 5
ALCAN ALUMINIUM LIMITED
INTERIM CONSOLIDATED BALANCE SHEET (cont'd)
(unaudited for 1998)
<TABLE>
<CAPTION>
(in millions of US$, June 30 December 31
except per common share amounts) 1998 1997
------- -----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Payables..................................... $ 1,038 $ 1,052
Short-term borrowings........................ 198 238
Income.and other taxes....................... 49 98
Debt maturing within one year................ 40 36
------- -------
1,325 1,424
------- -------
Debt not maturing within one year............. 1,222 1,241
Deferred credits and other liabilities........ 609 623
Deferred income taxes......................... 698 969
Minority interests............................ 42 43
SHAREHOLDERS' EQUITY
Redeemable non-retractable
preference shares.......................... 160 203
Common shareholders' equity
Common shares.............................. 1,256 1,251
Retained earnings.......................... 3,992 3,556
Deferred translation adjustments........... (3) 64
------- -------
5,245 4,871
------- -------
Total shareholders' equity.................... 5,405 5,074
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.... $ 9,301 $ 9,374
------- -------
COMMON SHAREHOLDERS' EQUITY PER COMMON SHARE.. $ 23.05 $ 21.43
------- -------
RATIO OF TOTAL BORROWINGS TO EQUITY........... 21:79 23:77
------- -------
</TABLE>
5
<PAGE> 6
ALCAN ALUMINIUM LIMITED
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six months ended June 30
(in millions of US$) 1998 1997
----- -----
<S> <C> <C>
OPERATING ACTIVITIES
Net income...................................... $ 203 $ 259
Adjustments to determine cash
from operating activities:
Depreciation............................... 223 217
Deferred income taxes...................... 33 (6)
Equity income - net of dividends........... 44 3
Change in operating working capital........ (183) (262)
Change in deferred charges,
other assets, deferred credits
and other liabilities - net.............. (42) (4)
Gain on sales of businesses - net ......... (1) (13)
Other - net................................ 3 22
----- -----
CASH FROM OPERATING ACTIVITIES.................. 280 216
----- -----
FINANCING ACTIVITIES
New debt....................................... 8 35
Debt repayments................................ (14) (34)
----- -----
(6) 1
Short-term borrowings - net................... (38) 77
Common shares issued........................... 5 9
Redemption of preference shares................ (43) -
Dividends - Alcan shareholders
(including preference)............. (73) (73)
- Minority interests................. (1) (2)
----- -----
CASH FROM (USED FOR) FINANCING ACTIVITIES....... (156) 12
----- -----
</TABLE>
6
<PAGE> 7
ALCAN ALUMINIUM LIMITED
<TABLE>
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS (cont'd)
(unaudited)
<CAPTION>
Six months ended June 30
(in millions of US$) 1998 1997
---- ----
<S> <C> <C>
INVESTMENT ACTIVITIES
Property, plant and equipment....................... (292) (230)
Investments......................................... (2) -
Net proceeds from disposal of
businesses and other assets....................... 2 48
---- ----
CASH USED FOR INVESTMENT ACTIVITIES.................. (292) (182)
---- ----
Effect of exchange rate changes
on cash and time deposits........................... (1) -
---- ----
INCREASE (DECREASE) IN CASH AND TIME DEPOSITS........ (169) 46
Cash of companies consolidated (deconsolidated)...... 1 (11)
Cash and time deposits
- beginning of period............................... 608 546
---- ----
Cash and time deposits
- end of period..................................... $440 $581
---- ----
</TABLE>
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<PAGE> 8
ALCAN ALUMINIUM LIMITED
INFORMATION BY PRODUCT SECTOR
(unaudited)
Periods ended June 30
(in millions of US$)
SECOND QUARTER
<TABLE>
<CAPTION>
SALES AND OPERATING REVENUES OPERATING INCOME
----------------------------- ----------------
Intersector Third parties
----------- -------------
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Raw materials and
chemicals..................... $ 124 $ 131 $ 129 $ 126 $ 30 $ 31
Primary metal................. 358 378 322 383 85 136
Fabricated products........... - - 1,533 1,499 88 94
Intersector and
other items.................. (482) (509) 2 3 37 (19)
----- ----- ------ ------ ----- -----
$ - $ - $1,986 $2,011 $ 240 $ 242
----- ----- ------ ------
Reconciliation to net income
Equity income (loss)........ $ (23) $ (1)
Corporate offices........... (34) (27)
Interest.................... (21) (26)
Income taxes................ (76) (72)
----- -----
NET INCOME.................. $ 86 $ 116
----- -----
</TABLE>
SIX MONTHS
<TABLE>
<CAPTION>
SALES AND OPERATING REVENUES OPERATING INCOME
---------------------------- ----------------
Intersector Third parties
------------- -------------
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Raw materials and
chemicals................... $ 256 $ 244 $ 266 $ 246 $ 69 $ 39
Primary metal................ 731 769 675 756 215 302
Fabricated products.......... - - 2,993 2,871 164 159
Intersector and
other items................. (987) (1,013) 5 8 56 (14)
------ ------ ------ ------ ----- -----
$ - $ - $3,939 $3,881 $ 504 $ 486
------ ------ ------ ------
Reconciliation to net income
Equity income (loss)........ $ (39) $ 2
Corporate offices........... (64) (61)
Interest.................... (44) (51)
Income taxes................ (154) (117)
----- ------
NET INCOME.................. $ 203 $ 259
----- ------
</TABLE>
8
<PAGE> 9
ALCAN ALUMINIUM LIMITED
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
(in millions of US$, except per share amounts)
1. ACCOUNTING CHANGE
In 1998, the Company adopted new recommendations of the Canadian Institute
of Chartered Accountants dealing with accounting for income taxes. The
principal change under the new recommendations is the requirement to
revalue deferred income tax liabilities for all changes in tax rates and
exchange rates.
The Company has adopted the new recommendations retroactively without
restating prior years. The cumulative effect of adopting the new
recommendations at January 1, 1998 is to decrease Deferred income taxes by
$285 million, to increase Retained earnings by $306 million and to decrease
Deferred translation adjustments by $21 million.
2. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (GAAP)
Differences in 1998 relate principally to accounting for foreign currency
translation. Differences prior to 1998 relate principally to accounting
for deferred income taxes.
RECONCILIATION OF CANADIAN AND U.S. GAAP
<TABLE>
<CAPTION>
1998 1997
----------------- ---------------
AS U.S. As U.S.
REPORTED GAAP Reported GAAP
-------- ---- -------- ----
<S> <C> <C> <C> <C>
Net income
First quarter................ $ 117 $ 117 $ 143 $ 142
Second quarter............... 86 94 116 141
------ ------ ------ ------
Six months................... $ 203 $ 211 $ 259 $ 283
------ ------ ------ ------
Net income attributable
to common shareholders..... $ 198 $ 206 $ 254 $ 278
------ ------ ------ ------
Net income per common share
Basic and diluted.......... $ 0.87 $ 0.91 $ 1.12 $ 1.23
------ ------ ------ ------
</TABLE>
9
<PAGE> 10
RECONCILIATION OF CANADIAN AND U.S. GAAP (CONT'D)
<TABLE>
<CAPTION>
1998 1997
---------------------------------------------
AS U.S. As U.S.
REPORTED GAAP Reported GAAP
-------- ---- -------- ----
<S> <C> <C> <C> <C>
Comprehensive income *
First quarter..................... n/a $ 111 n/a $ 61
Second quarter.................... n/a $ 54 n/a $ 178
------- ------- ------- -------
Six months........................ n/a $ 165 n/a $ 239
------- ------- ------- -------
Deferred income taxes
- June 30.................... $ 698 $ 698 $ 977 $ 722
------- ------- ------- -------
Retained earnings
- June 30.................... $ 3,992 $ 4,033 $ 3,403 $ 3,730
------- ------- ------- -------
Deferred translation
adjustments - June 30............. $ (3) $ (43) $ 176 $ 98
------- ------- ------- -------
<FN>
* 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.
</FN>
</TABLE>
3. INCOME TAXES
<TABLE>
<CAPTION>
Second quarter Six months
---------------- -----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Current................................ $ 58 $ 76 $ 121 $ 123
Deferred............................... 18 (4) 33 (6)
---- ---- ----- -----
$ 76 $ 72 $ 154 $ 117
---- ---- ----- -----
</TABLE>
The composite of the applicable statutory corporate income tax rates in
Canada is 40.4% (40.3% for 1997).
The difference between income taxes calculated at the composite rate and
the amounts shown as reported is attributable mainly to exchange and the large
corporations tax, partially offset by investment and other allowances. In 1997,
the difference is mainly attributable to prior years' tax adjustments and
investment and other allowances.
10
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4. NET INCOME PER COMMON SHARE
Net income per common share is based on the average number of shares
outstanding during the period (second quarter 1998: 227.5 million;
1997: 227.0 million; six months 1998: 227.5 million; 1997: 226.9 million).
As at June 30, 1998, there were 227,538,313 common shares outstanding.
5. SUPPLEMENTARY INFORMATION
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Second quarter Six months
----------------- -----------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Interest paid.................. $ 21 $ 22 $ 49 $ 50
Income taxes paid.............. $ 96 $ 70 $ 185 $ 130
------ ------ ------ ------
</TABLE>
SUMMARIZED FINANCIAL INFORMATION
The following is summarized consolidated financial information for Alcan
Aluminum Corporation, a wholly-owned subsidiary in the United States.
<TABLE>
<CAPTION>
Second quarter Six months
----------------- -----------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Revenues...................... $ 996 $ 954 $1,908 $1,819
Costs and expenses............ 912 897 1,759 1,737
------ ------ ------ ------
Income before incomes taxes... 84 57 149 82
Income taxes.................. 33 22 59 32
------ ------ ------ ------
Net income.................... $ 51 $ 35 $ 90 $ 50
------ ------ ------ ------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30 December 31
1998 1997
----------- -----------
<S> <C> <C>
FINANCIAL POSITION
Current assets............................... $ 852 $ 801
Current liabilities.......................... 456 376
------ ------
Working capital.............................. 396 425
Property, plant and equipment - net.......... 716 736
Other liabilities - net...................... (49) (199)
------ ------
1,063 962
Debt not maturing within one year............ 102 102
------ ------
Net assets................................... $ 961 $ 860
------ ------
</TABLE>
11
<PAGE> 12
In the above figures, inventories have been valued principally by the
last-in, first-out (LIFO) method. In the Company's consolidated financial
statements, the average cost method is used.
6. SUBSEQUENT EVENT
On July 3, 1998, the Company acquired an additional 17% of Indian Aluminium
Company, Limited (Indal), and will acquire a further 3% on completion of
certain Indian tax formalities, for a total of $70 million in cash. This
will bring Alcan's stake in Indal to 54.6%.
7. PRIOR YEAR AMOUNTS
Certain prior year amounts have been reclassified to conform with the 1998
presentation.
In the opinion of management, all adjustments necessary for a fair
presentation of interim period results have been included in the financial
statements. These interim results are not necessarily indicative of results for
the full year.
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<TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
<CAPTION>
SECOND SIX FIRST
QUARTER MONTHS QUARTER
------------ ----------- -------
Highlights (US$ millions, 1998 1997 1998 1997 1998
except per share amounts) ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Sales and operating revenues.... 1,986 2,011 3,939 3,881 1,953
Net income...................... 86 116 203 259 117
Net income per common share..... 0.37 0.50 0.87 1.12 0.50
</TABLE>
The Company reports second quarter consolidated net income of US$113
million (49 cents per share) before losses at its Japanese affiliate, compared
to $118 million (51 cents per share) in the corresponding quarter of 1997. After
a charge of $27 million (12 cents per share) for losses at 45.6%-owned Nippon
Light Metal Company, Ltd. (NLM) net income for the quarter ended June 30, 1998
was $86 million versus $116 million in the second quarter of 1997. After
preference share dividends, net income per common share for the quarter is 37
cents compared to 50 cents a year earlier.
Alcan's share of the equity-accounted losses at NLM referred to above
includes restructuring costs of $16 million (7 cents per share). NLM's losses
have no impact on Alcan's cash flows. The maximum amount of losses which Alcan
may be required to record in the future is limited to the net book value of its
investment in NLM. At current exchange rates, the net book value of Alcan's
investment in NLM now stands at $88 million.
Fabricated product operations in Europe and North America performed well,
despite the lower commodity price environment, with total fabricated product
shipments up 7% from the previous quarter. Alcan's Japanese affiliate, however,
posted increased operating losses and restructuring costs in the light of very
weak economic conditions.
Although market conditions remain satisfactory in Europe and North America,
the price for aluminum is unlikely to improve until there are signs of economic
recovery in Japan. Good progress is being made in Alcan's Full Business
Potential program, with a further $40 million achieved in the first half of this
year. The Company is on track to achieve the targeted $300 million earnings
improvement by the end of 1999.
During the quarter, a 5 1/2-year wage agreement was negotiated with a
majority of Alcan's unionized employees in Quebec, under the 18-year 'no
interruption' agreement announced earlier this year.
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<PAGE> 14
<TABLE>
<CAPTION>
SECOND SIX FIRST
QUARTER MONTHS QUARTER
------------ ------------ -------
Volumes (thousands of tonnes) 1998 1997 1998 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Shipments
Ingot products*.............................. 207 216 409 428 202
Fabricated products.......................... 469 448 905 859 436
Fabrication of customer-owned metal............. 72 73 140 140 68
----- ----- ----- ----- -----
Total volume.................................... 748 737 1,454 1,427 706
===== ===== ===== ===== =====
Ingot product realizations (US$ per tonne)...... 1,591 1,770 1,630 1,733 1,670
Fabricated product realizations (US$ per tonne). 2,930 2,990 2,969 2,980 3,010
<FN>
*Includes primary and secondary ingot and scrap
</FN>
</TABLE>
Sales and operating revenues for the second quarter of 1998 showed a slight
increase over the first quarter, despite lower metal prices, reflecting higher
fabricated product volumes.
Total fabricated product volumes, which include products fabricated from
customer-owned metal, reached a record level of 541 thousand tonnes (kt) in the
second quarter, some 4% higher than a year earlier and 7% ahead of the first
quarter of 1998.
Average ingot product realizations declined $79/tonne from the first
quarter and $179/tonne from the second quarter of 1997 compared to declines of
$93 and $218 respectively in the LME 3-month price.
Fabricated product realizations also declined by less than the drop in
ingot prices compared to a year ago reflecting higher local currency prices in
Europe.
PRODUCT SECTOR REVIEW
The Company reports selected information by major product sector, viewed on
a stand-alone basis. Transactions between product sectors are conducted on an
arm's length basis and reflect market-related prices. Thus, profit on all
alumina produced by the Company, whether sold to third parties or used in the
Company's smelters, is included in the raw materials and chemicals sector.
Similarly, income from primary metal operations is mainly profit on metal
produced by the Company, whether sold to third parties or used in the Company's
fabricating operations. Income from fabricated product businesses represents
only the fabricating profit on rolled products and downstream businesses.
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<PAGE> 15
<TABLE>
<CAPTION>
SECOND SIX FIRST
QUARTER MONTHS QUARTER
------------ ------------ -------
(US$ millions) 1998 1997 1998 1997 1998
<S> <C> <C> <C> <C> <C>
Operating income
Raw materials and chemicals..... 30 31 69 39 39
Primary metal................... 85 136 215 302 130
Fabricated products............. 88 94 164 159 76
Intersector and other items..... 37 (19) 56 (14) 19
---- ---- ---- ---- ----
240 242 504 486 264
Equity income (loss)............... (23) (1) (39) 2 (16)
Corporate offices.................. (34) (27) (64) (61) (30)
Interest........................... (21) (26) (44) (51) (23)
Income taxes....................... (76) (72) (154) (117) (78)
---- ---- ---- ---- ----
Net income......................... 86 116 203 259 117
==== ==== ==== ==== ====
</TABLE>
Operating profits from raw material and chemical operations were little
changed from the year-ago quarter with lower prices offset by cost savings.
Earnings declined from the first quarter as the effect of lower metal prices
flowed through to alumina.
The decline in earnings from primary metal operations compared to the first
quarter of 1998 and the year-ago quarter results primarily from lower market
prices for ingot.
The continued improvement in results from fabricated product businesses
reflects further increases in volume in Europe and North America, partially
offset by weaker results from Asia and South America.
"Intersector and other items" primarily reflects the realization or
deferral of profits on intersector sales of metal. Profits were deferred in 1997
due to generally rising ingot prices. In the first half of 1998 previously
deferred profits on intersector sales were realized as ingot prices decreased.
Also included in this category is interest income.
Alcan recorded a loss from equity-accounted companies of $23 million for
the second quarter primarily arising at NLM in Japan. Business conditions in
Japan remain difficult and NLM's operating results deteriorated further. The
continuing review of operations resulted in further provisions for manpower
reductions, with Alcan's share of restructuring costs amounting to $16 million
in the quarter, $27 million year-to-date.
The effective tax rate rose in the second quarter of 1998 due principally
to higher earnings in countries with higher tax rates and foreign exchange rate
fluctuations.
15
<PAGE> 16
<TABLE>
GEOGRAPHIC REVIEW
<CAPTION>
SECOND SIX FIRST
QUARTER MONTHS QUARTER
------------ ------------ -------
Net income (Loss) (US$ millions) 1998 1997 1998 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Canada................................ 34 46 81 131 47
United States......................... 41 40 72 66 31
South America......................... 1 5 6 19 5
Europe................................ 5 15 29 27 24
Asia and Pacific...................... (17) 7 (23) 20 (6)
Other (including eliminations)....... 22 3 38 (4) 16
---- ---- ---- ---- ----
Net income 86 116 203 259 117
==== ==== ==== ==== ====
</TABLE>
In Canada, net income declined from the first quarter and the prior year
due to the effect of lower metal prices on primary metal operations.
In the United States, net income from operations continued to improve
reflecting strong fabricated product volumes, offset in part by lower profits
on primary metal produced in that country.
Operating results in South America were affected by lower primary metal
prices and seasonally weaker shipments of rolled products in the second
quarter.
European results were lower reflecting lower prices for alumina and metal.
Fabricated products, however, improved over the year earlier quarter.
Results in the Asia and Pacific region for the quarter reflect poor
results from Japan as well as lower alumina prices.
The profit from "Other" in the quarter arises principally from the
recognition of previously deferred profits on inter-regional sales of ingot. In
1997 this result was adverse as profits were deferred in a generally rising
metal price environment.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
Cash generated from operating activities during the first half of 1998 was
$280 million, compared to $216 million in the comparable period of 1997. This
is primarily due to a smaller increase in operating working capital reflecting
improved working capital turnover.
FINANCING ACTIVITIES
Cash used for financing activities in the first half of 1998 was $156
million compared to an inflow in the comparable period of 1997 of $12 million.
During the half year, the Company redeemed $43 million Series 'D' preference
shares and repaid $44 million of debt. The debt:equity ratio at June 30, at
21:79 is unchanged
16
<PAGE> 17
from the level at March 31, 1998 and compares to 23:77 a year ago. Total
borrowings at June 30,1998 were $1,460 million compared to $1,532 million a year
earlier.
At the end of the second quarter of 1998, the Company had cash and time
deposits of $440 million, reduced from $608 million at the beginning of the
year.
INVESTMENT ACTIVITIES
Capital expenditures during the first half of 1998 were $294 million,
compared to $230 million a year earlier. The investment of $1.6 billion in a new
375 kt/y aluminum smelter at Alma, Quebec has commenced, with expenditure of
approximately $200 million anticipated in the current year and most of the
remaining expenditure falling into 1999 and 2000. The year- ago period also
included $48 million of proceeds from disposal of businesses and other assets.
On July 3, 1998 the Company acquired an additional 17% of Indian Aluminium
Company, Limited (Indal), and is in the process of acquiring a further 3% which
requires completion of certain Indian tax formalities. The total cost of this
additional 20% is $70 million in cash and it will bring Alcan's stake in Indal
to 54.6%.
FINANCIAL INSTRUMENTS - CURRENCY HEDGING FOR ALMA SMELTER
Through a combination of option contracts and forward exchange contracts
totalling $932 million at June 30, 1998, and maturing over various periods in
1998 and 1999, the Company has hedged its future Canadian dollar commitments for
the construction of the new smelter at Alma, Quebec.
The present hedging position for the Alma project will ensure that the
Company will pay, on average, no more than $0.72 for Can$1.00, and will be able
to benefit, in part, from any future reductions in the value of the Canadian
dollar.
Any gains or losses from these hedging activities, and related costs, will
be included in the capital cost of the new smelter.
YEAR 2000 COMPLIANCE
Alcan continues to implement the various elements of its Year 2000 project.
Remediation, which involves the repair or replacement of systems internal to
Alcan that are not Year 2000 compliant, is under way and the Company believes it
is making good progress with its remediation efforts. The Company continues to
assess its vulnerability to third parties. If remediation by Alcan, or those
with which Alcan does business, is not made in a timely way, then business
interruptions or delays might occur that could have a material adverse effect on
Alcan's business and financial condition. Costs associated with Year 2000
systems remediation at Alcan facilities, based on information currently
available, are estimated to be US$50 million. Such costs are being expensed as
incurred over the 1998 and 1999 periods.
17
<PAGE> 18
PART II. -- OTHER INFORMATION
ITEMS 1. THROUGH 5.
The registrant has nothing to report under these items.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27) Financial Data Schedule. (Filed herewith.)
(99) Cautionary statement for purposes of the "Safe Harbor"
provisions of the Private Securities Litigation Reform Act
of 1995. (Filed herewith.)
(b) Reports on Form 8-K
None were filed in the quarter ended June 30, 1998.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALCAN ALUMINIUM LIMITED
Dated: August 13, 1998 By: /s/ Geoffrey P. Batt
--------------------------
Geoffrey P. Batt
Treasurer
(A Duly Authorized Officer)
18
<PAGE> 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.
<PAGE> 1
EXHIBIT NO. 99:
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Written or oral statements made by Alcan or its representatives,
including statements set forth in Alcan's Form 10-Q for the quarter ended June
30, 1998, which describe the Company's or management's objectives, projections,
estimates, expectations or predictions of the future may be "forward-looking
statements" within the meaning of the United States Private Securities
Litigation Reform Act of 1995, which can be identified by the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should," "estimates," "anticipates" or the negative thereof or other
variations thereon. The Company cautions that, by their nature, forward-looking
statements involve risk and uncertainty and that the Company's actual results
could differ materially from those expressed or implied in such forward-looking
statements or could affect the extent to which a particular projection is
realized.
Important factors which could cause the Company's actual performance
to differ materially from projections or expectations included in
forward-looking statements include global aluminum supply and demand
conditions, aluminum ingot prices and changes in other raw materials costs and
availability, cyclical demand and pricing within the principal markets for the
Company's products, changes in government regulations, particularly those
affecting environmental, health or safety compliance, economic developments and
other factors within the countries in which the Company operates or sells its
products and other factors relating to the Company's ongoing operations
including, but not limited to, litigation, labour negotiations and fiscal
regimes.
Copies of the Company's filings may be obtained by contacting the
Company or the United States Securities and Exchange Commission.
<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE FORM 10-Q OF ALCAN ALUMINIUM LIMITED
FOR THE QUARTER ENDED 30 JUNE 1998 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<FISCAL-YEAR-END> DEC-31-1998
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