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