<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
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 September 30, 1999, the registrant had 217,829,003 shares of common stock
(without nominal or par value) outstanding.
<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
--------------------------- ---------------
1999 1998 1999 1998
------------- ----------- ------ ------
<S> <C> <C> <C> <C>
REVENUES
Sales and operating revenues $1,820 $1,950 $5,418 $5,889
Other income (note 5) 64 10 142 47
------ ------ ------ ------
1,884 1,960 5,560 5,936
------ ------ ------ ------
COSTS AND EXPENSES
Cost of sales and operating
expenses 1,390 1,514 4,254 4,560
Depreciation 116 116 351 339
Selling, administrative and
general expenses 82 108 288 325
Research and development
expenses 17 17 49 51
Interest (note 8) 16 21 60 65
Other expenses (notes 6 & 7) 31 23 108 41
------ ------ ------ ------
1,652 1,799 5,110 5,381
------ ------ ------ ------
Income before income taxes
and other items 232 161 450 555
Income taxes (note 2) 71 44 174 198
------ ------ ------ ------
Income before other items 161 117 276 357
Equity income (loss) - (9) (1) (48)
Minority interests (3) (1) (8) 1
------ ------ ------ ------
NET INCOME $ 158 $ 107 $ 267 $ 310
Dividends on preference shares 3 3 7 8
------ ------ ------ ------
NET INCOME ATTRIBUTABLE
TO COMMON SHAREHOLDERS $ 155 $ 104 $ 260 $ 302
------ ------ ------ ------
</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
1999 1998 1999 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
NET INCOME PER COMMON
SHARE (NOTE 3) $0.71 $0.46 $1.19 $1.33
----- ----- ----- -----
DIVIDENDS PER COMMON SHARE $0.15 $0.15 $0.45 $0.45
----- ----- ----- -----
INTERIM CONSOLIDATED STATEMENT OF RETAINED EARNINGS
(unaudited)
Nine months ended September 30
(in millions of US$) 1999 1998
------ ------
RETAINED EARNINGS - BEGINNING OF PERIOD $4,078 $3,862
Net income 267 310
Amount related to common shares
purchased for cancellation 171 -
Dividends - Common 99 102
- Preference 7 8
------ ------
RETAINED EARNINGS - END OF PERIOD $4,068 $4,062
------ ------
</TABLE>
3
<PAGE> 4
ALCAN ALUMINIUM LIMITED
INTERIM CONSOLIDATED BALANCE SHEET
(unaudited for 1999)
<TABLE>
<CAPTION>
(in millions of US$) September 30 December 31
1999 1998
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and time deposits $ 440 $ 615
Receivables 1,384 1,401
Inventories
Aluminum 704 826
Raw materials 297 345
Other supplies 207 242
------- -------
1,208 1,413
------- -------
TOTAL CURRENT ASSETS 3,032 3,429
------- -------
Deferred charges and other assets 504 517
Investments 33 58
Property, plant and equipment
Cost (excluding Construction Work
in progress) 11,652 11,758
Construction work in progress 1,051 911
Accumulated depreciation 6,513 6,772
------- -------
6,190 5,897
------- -------
TOTAL ASSETS $ 9,759 $ 9,901
------- -------
</TABLE>
4
<PAGE> 5
ALCAN ALUMINIUM LIMITED
INTERIM CONSOLIDATED BALANCE SHEET (cont'd)
(unaudited for 1999)
<TABLE>
<CAPTION>
(in millions of US$, September 30 December 31
except per common share amounts) 1999 1998
------------ -----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Payables $1,200 $1,104
Short-term borrowings 115 86
Income and other taxes 60 28
Debt maturing within one year (notes 6 & 9) 163 166
------ ------
1,538 1,384
------ ------
Debt not maturing within one year 1,304 1,537
Deferred credits and other liabilities 560 604
Deferred income taxes 766 747
Minority interests 199 110
SHAREHOLDERS' EQUITY
Redeemable non-retractable
preference shares 160 160
Common shareholders' equity
Common shares 1,218 1,251
Retained earnings 4,068 4,078
Deferred translation adjustments (54) 30
------ ------
5,232 5,359
------ ------
Total shareholders' equity 5,392 5,519
------ ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $9,759 $9,901
------ ------
COMMON SHAREHOLDERS' EQUITY PER COMMON SHARE $24.02 $23.71
------ ------
RATIO OF TOTAL BORROWINGS TO EQUITY 22:78 24:76
------ ------
</TABLE>
5
<PAGE> 6
ALCAN ALUMINIUM LIMITED
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30
(in millions of US$) 1999 1998
----- -----
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 267 $ 310
Adjustments to determine cash
from operating activities:
Depreciation 351 339
Deferred income taxes 35 33
Equity loss - net of dividends 2 53
Change in operating working capital 235 (102)
Change in deferred charges,
other assets, deferred credits
and other liabilities - net 4 (65)
Gain on sales of businesses - net (90) (1)
Other - net 16 6
----- -----
CASH FROM OPERATING ACTIVITIES 820 573
----- -----
FINANCING ACTIVITIES
New debt 3 55
Debt repayments (208) (50)
----- -----
(205) 5
Short-term borrowings - net (4) (107)
Common shares purchased for cancellation (219) -
Common shares issued 15 8
Redemption of preference shares -- (43)
Dividends - Alcan shareholders
(including preference) (106) (110)
- Minority interests (4) (1)
----- -----
CASH USED FOR FINANCING ACTIVITIES (523) (248)
----- -----
</TABLE>
6
<PAGE> 7
ALCAN ALUMINIUM LIMITED
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS (cont'd)
(unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30
(in millions of US$) 1999 1998
------ ------
<S> <C> <C>
INVESTMENT ACTIVITIES
Property, plant and equipment $(759) $(511)
Investments (129) (72)
Net proceeds from disposal of businesses,
investments and other assets 433 4
----- -----
CASH USED FOR INVESTMENT ACTIVITIES (455) (579)
----- -----
Effect of exchange rate changes
on cash and time deposits (13) 5
----- -----
DECREASE IN CASH AND TIME DEPOSITS (171) (249)
Cash of companies consolidated (deconsolidated) (4) 16
Cash and time deposits
- beginning of period 615 608
----- -----
Cash and time deposits
- end of period $ 440 $ 375
----- -----
</TABLE>
7
<PAGE> 8
ALCAN ALUMINIUM LIMITED
INFORMATION BY OPERATING SEGMENT*
(unaudited)
<TABLE>
<CAPTION>
Periods ended September 30
(in millions of US$)
SALES AND OPERATING REVENUES OPERATING INCOME
-------------------------------------- ----------------
Third Quarter Third Quarter
--------------- ----------------
Intersegment Third parties
------------ -------------
1999 1998 1999 1998 1999 1998
----- ----- ------ ------ ----- ----
<S> <C> <C> <C> <C> <C> <C>
Primary metal group $ 331 $ 363 $ 428 $ 430 $ 116 $ 82
Global fabrication
group -- -- 1,377 1,516 95 65
Intersegment and
other items (331) (363) 15 4 43 41
----- ----- ------ ------ ----- ----
$ -- $ -- $1,820 $1,950 $ 254 $188
----- ----- ------ ------ ----- ----
RECONCILIATION TO NET INCOME
Equity income (loss) -- (9)
Corporate offices (9) (7)
Interest (16) (21)
Income taxes (71) (44)
----- ----
NET INCOME $ 158 $107
----- ----
</TABLE>
<TABLE>
<CAPTION>
SALES AND OPERATING REVENUES OPERATING INCOME
-------------------------------------- ----------------
Nine months Nine months
--------------- ----------------
Intersegment Third parties
------------ -------------
1999 1998 1999 1998 1999 1998
----- ------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
Primary metal group $ 961 $1,096 $1,218 $1,371 $ 181 $ 338
Global fabrication
group -- -- 4,180 4,509 217 193
Intersegment and
other items (961) (1,096) 20 9 133 115
----- ------ ------ ------ ----- -----
$ -- $ -- $5,418 $5,889 $ 531 $ 646
----- ------ ------ ------ ----- -----
RECONCILIATION TO NET INCOME
Equity loss (1) (48)
Corporate offices (29) (25)
Interest (60) (65)
Income taxes (174) (198)
----- -----
NET INCOME $ 267 $ 310
----- -----
</TABLE>
[FN]
* In March 1999, the Company announced the creation of two global operating
segments, the Primary metal group and the Global fabrication group.
Corporate office and certain other costs have been allocated to the
respective operating segments. Comparative information for 1998 has been
restated to conform to the new corporate structure.
</FN>
8
<PAGE> 9
ALCAN ALUMINIUM LIMITED
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(unaudited)
(in millions of US$, except per share amounts)
1. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (GAAP)
Differences relate principally to accounting for foreign currency
translation and accounting for "available for sale" securities.
RECONCILIATION OF CANADIAN AND U.S. GAAP
<TABLE>
<CAPTION>
1999 1998
------------------ -------------------
As U.S. As U.S.
Reported GAAP Reported GAAP
-------- ---- --------- ----
<S> <C> <C> <C> <C>
Net income
First quarter $ 38 $ 38 $ 117 $ 117
Second quarter 71 67 86 94
Third quarter 158 160 107 103
----- ----- ----- -----
Nine months $ 267 $ 265 $ 310 $ 314
----- ----- ----- -----
Net income attributable
to common shareholders $ 260 $ 258 $ 302 $ 306
----- ----- ----- -----
Net income per common share
(basic and diluted) $1.19 $1.17 $1.33 $1.34
----- ----- ----- -----
</TABLE>
9
<PAGE> 10
RECONCILIATION OF CANADIAN AND U.S. GAAP (cont'd)
<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
As U.S. As U.S.
Reported GAAP Reported GAAP
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Comprehensive income *
First quarter n/a $ (28) n/a $ 111
Second quarter n/a $ 60 n/a $ 54
Third quarter n/a $ 129 n/a $ 166
------ ------ ------ ------
Nine months n/a $ 161 n/a $ 331
------ ------ ------ ------
Investments -- September 30 $ 33 $ 60 $ 58 $ 58
------ ------ ------ ------
Retained earnings
-- September 30 $4,068 $4,117 $4,062 $4,099
------ ------ ------ ------
Deferred translation
adjustments -- September 30 $ (54) $ (110) $ 60 $ 20
------ ------ ------ ------
</TABLE>
[FN]
* 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 plus the unrealized gain or loss for
the period on "available for sale" securities. The concept of comprehensive
income does not exist under Canadian GAAP.
</FN>
2. INCOME TAXES
<TABLE>
<CAPTION>
Third quarter Nine months
------------------ ------------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Current $ 77 $ 44 $ 139 $ 165
Deferred (6) - 35 33
------ ------ ------ ------
$ 71 $ 44 $ 174 $ 198
------ ------ ------ ------
</TABLE>
The composite of the applicable statutory corporate income tax rates in Canada
is 40.4%.
The difference between income taxes calculated at the composite rate and the
amounts shown as reported is primarily attributable to reduced rate or tax
exempt items and investment and other allowances, partially offset by the
currency revaluation of deferred income taxes.
In 1998, the difference is attributable to investment and other allowances and
the currency revaluation of deferred income taxes, partially offset by exchange.
10
<PAGE> 11
3. NET INCOME PER COMMON SHARE
Net income per common share is based on the average number of shares
outstanding during the period (third quarter 1999: 217.7 million;
1998:227.6 million; nine months 1999: 219.4 million; 1998: 227.5 million).
As at September 30 1999, there were 217,829,003 common shares outstanding.
4. SUPPLEMENTARY INFORMATION
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Third quarter Nine months
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest paid $ 29 $ 24 $ 97 $ 73
Income taxes paid $ 71 $ 48 $154 $233
</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
------------- --------------
1999 1998 1999 1998
---- ---- ----- -----
<S> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Revenues $959 $995 $2,783 $2,863
Costs and expenses 878 871 2,558 2,630
---- ---- ------ ------
Income before incomes taxes 81 84 225 233
Income taxes 30 33 75 92
---- ---- ------ ------
Net income $ 51 $ 51 $ 150 $ 141
---- ---- ------ ------
</TABLE>
<TABLE>
<CAPTION>
September 30 December 31
1999 1998
------------ -----------
<S> <C> <C>
FINANCIAL POSITION
Current assets $ 846 $ 883
Current liabilities 543 483
------ ------
Working capital 303 400
Property, plant and equipment -- net 676 714
Other assets liabilities -- net 218 (67)
------ ------
1,197 1,047
Debt not maturing within one year 2 2
------ ------
Net assets $1,195 $1,045
------ ------
</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.
5. SALE OF BUSINESSES
During the first quarter of 1999, the Company completed the sale of the
Aughinish alumina refinery. The net book value of the assets sold had been
written down to net realizable value in the fourth quarter of 1998 in
anticipation of completion of the sale in 1999.
During the second quarter of 1999, the Company completed the sale of its
piston operations in Germany for a pre-tax gain of $46.
In the third quarter of 1999, the Company sold a subsidiary in France for a
pre-tax gain of $8 and a portion of its portfolio investment in Nippon
Light Metal Company, Ltd. for a pre-tax gain of $37.
The gains on the sale of businesses and investments are included in Other
income.
6. REDEMPTION OF DEBT
In the third quarter, the Company redeemed $132 principal of its 9-5/8%
$150 debentures due in 2019 at a price of 104.64%. The loss on redemption
of $6 is included in Other expenses.
7. REORGANIZATION COSTS
In 1999, the Company announced a new organization to better enable it to
meet the financial objectives contained in its "Full Business Potential"
program. This reorganization included the implementation, in the second
and third quarters, of a number of early retirement and severance programs
resulting in a reduction of the Company's workforce. As a result of this
reorganization and other restructuring programs, the Company has incurred
costs of $8 in the third quarter ($39 for nine months) which are included
in Other expenses, most of which will be paid in 1999 and 2000.
8. CAPITALIZATION OF INTEREST COSTS
Total interest costs in the third quarter and nine months were $26 and $89
(1998: $25 and $74) respectively, of which $10 and $29 (1998: $4 and $9)
respectively, were capitalized.
12
<PAGE> 13
9. ACQUISITION OF BUSINESS
In the third quarter of 1999, the Company purchased a 56% interest in a
newly created company based in Korea, Alcan Taihan Aluminum Limited. Total
cash consideration paid by Alcan for its equity interest in the new
subsidiary was $129. In addition, the Company assumed debt of $58.
10. COMBINATION AGREEMENT WITH PECHINEY AND ALUSUISSE LONZA GROUP LTD.
On September 15, 1999, the Company entered into a combination agreement
with Pechiney and Alusuisse Lonza Group Ltd. (Algroup). The proposed
combination will be accomplished through two independent exchange offers of
the Company's shares, one for all of the outstanding shares of Pechiney and
the other for all of the outstanding shares of Algroup. Upon completion of
the combination, which is subject to regulatory approvals, assuming that
all of the Pechiney and Algroup shares are exchanged for the Company's
shares, the Company's shareholders would hold 44% of the shares of the
Combined Company on a fully diluted basis. A special meeting of the
Company's shareholders will be held on November 22, 1999 to approve the
issuance of the Company's shares under the two independent exchange offers.
11. PRIOR PERIOD AMOUNTS
Certain prior period amounts have been reclassified to conform with the
1999 presentation.
In the opinion of management, all adjustments necessary for a fair presentation
of interim period results have been included in the financial statements. These
interim results are not necessarily indicative of results for the full year.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Highlights (US$ millions, THIRD NINE SECOND
except per share amounts) QUARTER MONTHS QUARTER
------------- ------------- -------
1999 1998 1999 1998 1999
------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
Sales and operating revenues 1,820 1,950 5,418 5,889 1,776
Economic Value Added (EVA)(R) (6) (81) (171) (226) (59)
Net income 158 107 267 310 71
Net income per common share 0.71 0.46 1.19 1.33 0.32
</TABLE>
(R)EVA is a registered trademark of Stern, Stewart & Company
The Company reports third quarter consolidated net income of $158 million
compared to $71 million in the previous quarter and $107 million in the third
quarter of 1998. After preference share dividends, net income per common share
for the quarter is 71 cents compared to 32 cents in the second quarter and 46
cents a year earlier.
The results for the quarter include net non-operating gains of $42 million
or 19 cents per share. These comprise gains on the sale of non-core assets,
principally a further sale of shares in Nippon Light Metal Company, Ltd (NLM) in
Japan and the Company's building products business in France, totaling $47
million (21 cents per share), partly offset by rationalization costs in the
Quebec smelter system amounting to $5 million. The prior year quarter included a
gain on currency revaluation of deferred income tax, partly offset by losses at
NLM and restructuring charges, netting to a gain of $4 million, or 2 cents per
share. Excluding all these items, earnings per share were 52 cents compared to
44 cents a year earlier, an 18% improvement.
The improving trend in earnings that began in the second quarter continued,
with strong demand for the Company's products and higher prices as well as
benefits from the Company's ongoing Full Business Potential earnings
improvement program. Other major growth initiatives also moved ahead in the
quarter. Alcan reached agreement to merge with Pechiney of France and Algroup
of Switzerland in order to create a highly profitable world leader in both the
aluminum and packaging industries. Good progress is being made towards the
realization of this combination that is expected to close in the early part of
next year. In addition, the formation of Alcan Taihan Aluminum Limited in South
Korea was completed at the end of September, creating a platform for
participating in the strongly-growing Asian rolled products market.
The improvement in Economic Value Added (EVA(R)) over the second quarter is due
to higher metal prices as well as benefits derived from the company's Full
Business Potential program.
14
<PAGE> 15
<TABLE>
<CAPTION>
THIRD NINE SECOND
QUARTER MONTHS QUARTER
-------------- -------------- -------
Volumes (thousands of tonnes) 1999 1998 1999 1998 1999
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Shipments
Ingot products* 211 213 641 622 209
Fabricated products 482 467 1,431 1,372 488
Fabrication of customer-owned metal 81 80 228 220 81
----- ----- ----- ----- -----
Total volume 774 760 2,300 2,214 778
===== ===== ===== ===== =====
Ingot product realizations (US$ per tonne) 1,564 1,482 1,466 1,580 1,451
Fabricated product realizations (US$ per tonne) 2,552 2,875 2,591 2,937 2,520
</TABLE>
* Includes primary and secondary ingot and scrap
Sales and operating revenues for the third quarter increased over the preceding
quarter reflecting higher metal prices and realizations. Revenues remain below a
year ago, despite higher sales volume, reflecting the sale of two downstream
businesses in Europe and the time lag in passing on ingot price increases.
Total fabricated product volumes, which include products fabricated from
customer-owned metal, were 563 thousand tonnes (kt) compared to the record level
of 569 kt reached in the second quarter and to 547 kt a year ago. The seasonal
decline was less pronounced than usual due to improving demand in Europe.
Average ingot product realizations of $1,564/tonne were ahead of both the
second quarter and year-ago levels due to the improving price on the London
Metal Exchange (LME).
Fabricated product realizations improved from the second quarter level as higher
LME prices began to be reflected in fabricated product prices. The decline
compared to a year ago results from changes in product mix due to businesses
sold and the time lag in pricing of certain can sheet contracts.
Operating segment Review
The Company reports selected information by major operating segment, viewed on a
stand-alone basis. Transactions between operating segments are conducted on an
arm's length basis and reflect market-related prices. Thus, income from primary
metal operations is mainly profit on metal produced by the Company, whether sold
to third parties or used in the Company's fabricating operations. Income from
the global fabrication group represents only the fabricating profit on rolled
products and downstream businesses.
15
<PAGE> 16
(US$ millions)
<TABLE>
<CAPTION> THIRD NINE SECOND
QUARTER MONTHS QUARTER
------------- ------------- -------
1999 1998 1999 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating income
Primary metal group 116 82 181 338 31
Global fabrication group 95 65 217 193 77
Intersector and other items 43 41 133 115 61
---- ---- ---- ---- ----
254 188 531 646 169
Equity income (loss) -- (9) (1) (48) 1
Corporate head office (9) (7) (29) (25) (8)
Interest (16) (21) (60) (65) (22)
Income taxes (71) (44) (174) (198) (69)
---- ---- ---- ---- ----
Net income 158 107 267 310 71
==== ==== ==== ==== ====
</TABLE>
Income for the primary metal group showed a strong improvement reflecting higher
ingot and alumina prices and reduced costs. The third quarter includes pre-tax
rationalization costs of $8 million in relation to the Quebec smelter system.
The second quarter included rationalization costs of $21 million.
In the global fabrication group, operating profits continued to improve over
both the second quarter and a year ago. In North America, sales volume was
slightly ahead of the second quarter and 4% over the year-ago quarter. Lower
costs resulted in improved margins. European shipments showed only a small,
seasonal reduction from the second quarter and there was a year-over-year
increase of 2%. Operating profits were ahead of both the second quarter and the
previous year. In South America, sales volume was unchanged from the second
quarter but operating profits were affected by depreciation and start-up costs
relating to the Pinda expansion that is currently undergoing customer
qualification trials. Asian income was little changed for the second quarter
level.
"Intersector and other items" includes pre-tax gains of $48 million on the
sale of assets, principally share in NLM, Japan and the Company's building
products business in France. Also included in this category is interest income
and the realization or deferral of profits on intersector sales of metal.
Income taxes for the quarter include a non-cash charge of $2 million relating
to the currency revaluation of the deferred income tax liability that results
from the stronger Canadian dollar. This compares to a charge of $12 million in
the second quarter of 1999 and a gain of $20 million in the third quarter of
1998. There is minimal tax in relation to the gains on asset disposals recorded
during the quarter due to the availability of capital losses.
16
<PAGE> 17
Geographic Review
<TABLE>
<CAPTION>
THIRD NINE SECOND
QUARTER MONTHS QUARTER
------------ ------------ -------
1999 1998 1999 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net income (Loss) (US$ millions)
Canada 39 45 (2) 126 (14)
United States 57 41 131 113 40
South America (2) -- (3) 6 8
Europe 15 3 46 32 23
Asia and Pacific 47 (5) 71 (28) 8
Other (including eliminations) 2 23 24 61 6
--- --- --- --- ---
158 107 267 310 71
=== === === === ===
</TABLE>
In Canada, the improvement in net income over the second quarter primarily
reflects the impact of higher metal prices. The third quarter also includes
rationalization costs of $5 million compared to $20 million in the
preceding quarter.
In the United States, the improved results reflect strong fabricated product
earnings and an improvement in the primary metal price.
Operating results in South America were impacted by depreciation and start-up
costs relating to the Pinda rolling mill expansion which is expected to begin
contributing to earnings in the early part of next year.
European operating results improved in the third quarter reflecting higher
volumes as compared to last year and improving margins. However, the second
quarter included a gain on business disposal of $26 million compared to
$8 million in the third quarter.
Results in the Asia and Pacific region for the quarter include the $37 million
gain on the sale of shares in NLM. The Korean acquisition has been consolidated
as of 30 September so there is no impact on income for the quarter.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
Cash from operating activities during the first nine months of 1999 was
$820 million compared to $573 million in the comparable period of 1998. The
lower net income from operations in the 1999 period compared to 1998 was offset
by an improvement in working capital, which was reduced by $235 million during
the first nine months of 1999. In the corresponding period of 1998, working
capital had risen by $102 million.
Financing Activities
Cash used for financing activities in the first nine months of 1999 was
$523 million compared to $248 million in the same period of 1998. In the first
quarter of this year the Company purchased for cancellation 8.8 million common
shares for $219 million. During the first nine months of this year debt was
reduced by a total of $205 million. On July 15, 1999 the Company redeemed
$132 million principal of its 9 5/8% $150 million debentures due 2019 at a
price of 104.64%. The debt:equity ratio at September 30, of 22:78 was
unchanged from a year ago and compares to 24:76 at June 30, 1999.
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<PAGE> 18
At the end of the third quarter of 1999, the Company had cash and time deposits
of $440 million compared to $375 million a year earlier.
Investment Activities
Capital expenditures during the first nine months of 1999 were $759 million
compared to $511 million a year earlier. Major projects during the period were
the expansion of the rolling mill at Pindamonhangaba, Brazil, which was
completed during the third quarter, and the construction of the Alma aluminum
smelter in Quebec. In addition, the Company acquired a 56% interest in Alcan
Taihan Aluminum Limited in South Korea for $129 million in cash plus the
assumption of $58 million of debt.
Net proceeds from the disposal of businesses and other assets were $433 million.
In the first quarter of 1999, the Company completed the sale of the Aughinish
alumina refinery. During the second quarter of this year, the Company completed
the sale of its piston operation in Germany. In the third quarter, the sale of
the building systems business in France was completed and a further sale of
shares in Nippon Light Metal Company, Ltd in Japan was made.
FINANCIAL INSTRUMENTS
Earlier this year the Company decided to revise its currency risk management
strategy for its ongoing Canadian dollar operating cost exposure. The Company
has moved from a systematic approach of hedging a substantial percentage of its
Canadian dollar exposure for up to a three-year period to an approach that
hedges exposures on a more limited basis. The new approach will tie the
Company's financial results more closely to prevailing exchange rates and will
also reduce the cost of hedging instruments and of program administration and
management. Accordingly, the amount of outstanding foreign exchange contracts
and options related to hedging of Canadian dollar operating cost exposure has
declined significantly. At September 30, the total contract amount of forward
exchange contracts and purchase option contracts used to hedge Canadian dollar
operating cost exposure was approximately $600 million compared with
approximately $1.4 billion at December 31, 1998. The Company expects that by the
end of 1999, the amount outstanding will approximate $400 million.
This change in approach does not affect the Company's hedging of its Canadian
dollar capital commitments, as described below.
Through a combination of option contracts and forward exchange contracts
totaling $700 million at September 30, 1999, and maturing over various periods
in 1999 and 2000, 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.
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<PAGE> 19
YEAR 2000 COMPLIANCE
Alcan is addressing the Year 2000 issue through a formal program (the
"Project") designed and implemented with the assistance of outside consultants.
Products made and sold by Alcan do not contain date-sensitive software or
electronic components. The Project is therefore focused on evaluation and
remediation of systems hardware and related software used in business
applications, process controls and instrumentation used in the manufacturing
process, and on risks associated with suppliers and other third-parties not
being Year 2000 compliant.
Alcan has completed the remediation phase of its Year 2000 Project.
Implementation of remediated critical systems was in excess of 99% complete by
September 30, 1999. Implementation involves integrating into normal operation a
remediated system or component and ensuring that all related supporting
infrastructure is in place.
Alcan has surveyed key third party suppliers to address their Year 2000
readiness and to provide Alcan with information for contingency planning.
Communication with third parties regarding year 2000 is a continuing process.
Alcan is dependent upon a number of third parties including utilities and raw
material suppliers. Alternate suppliers are not available in all cases. Alcan
operates or controls, through direct ownership or joint ventures, the supply of
a majority of its requirements for bauxite and alumina. This enables Alcan to
assess and manage risk directly with respect to these key raw materials.
Special attention is given to electricity suppliers since Alcan's smelting and
fabricating business rely heavily on electricity to process materials. An
interruption of more than a few hours in electricity supplies could have
serious consequences for Alcan's smelters. Alcan generates its own power for
approximately 75% of its smelter capacity requirements which gives Alcan
control over power supply risks from these sources. Other power requirements
are generally from major utilities linked to national grid systems. These major
utilities have reported that they have appropriate Year 2000 programs that will
limit the likelihood of extended Year 2000 related disruptions.
Contingency planning by each business unit, including corporate functions, was
substantially complete by the end of June 1999. The goal of contingency
planning is to minimize the risk and impact of Year 2000 business interruptions
including the impact of disruptions from a financial, environmental, property
damage and employee perspective. Contingency planning takes into account both
Alcan's internal failures and the failure of third parties affecting Alcan
relating to Year 2000 readiness. Contingency plans are being tested and will be
further refined as additional information concerning Alcan's Year 2000 exposure
and opportunities become available throughout the balance of 1999. These
contingency plans relate to specifically identified Year 2000 risks where
contingency planning can be expected to have a material impact on the
seriousness of failure. The process of identifying such risks included the use
of various criteria such as probability of failure and cost benefit
considerations. Generally the contingency plans are tailored to the individual
situation of the business unit or corporate function. In addition to existing
disaster recovery and emergency response plans designed to address disruptive
situations, contingency plans may include accelerating raw material delivery
schedules for critical inputs, securing alternative sources of supply, adopting
workaround procedures, adjusting facility shutdown and start-up schedules,
increasing standby labor requirements at the millennium, providing back-up
processing capabilities for critical equipment or processes and other
appropriate measures. In the current business environment it is unlikely that,
at December 31, there will be a significant additional inventory of aluminum or
aluminum finished goods available within Alcan dedicated to Year 2000
contingency plans.
Alcan has a corporate level Business Continuity Team that will continue,
throughout the balance of 1999, to identify and assess, based on consolidated
information from the business units, Alcan's exposure to Year 2000 business
continuity risk at the corporate level and recommend mitigation strategies.
Crisis management centers incorporating multiple communications technologies
have been set up in all key regions in order to ensure rapid response to any
material events.
Each business unit continues to participate in audits by customers and other
third parties. In addition, the Company's internal auditors verify that
business units have followed the mandatory Year 2000 Project requirements. The
internal
19
<PAGE> 20
audit department conducted 72 verification audits in 1998 and the 80
verification audits planned for 1999 were nearly complete as of September 30.
Based on current information, Alcan believes that the most reasonably likely
worst case scenario to result from a Year 2000 failure by Alcan, its suppliers
or customers would be a temporary reduction in manufacturing capability at one
or more of Alcan's manufacturing or smelter facilities. Electrical supply is
considered to be the area of most acute risk to Alcan's smelting capabilities.
If a Year 2000 failure disrupted Alcan-owned or third party electrical utilities
for more than a few hours then the resulting reasonably likely worst case
scenario or impact could be a temporary closure of affected facilities and
potential significant damage to smelter production equipment. This could impact
deliveries and customer expectations as well as cause costly downtime and
equipment repair. Alcan believes that the Project, including related contingency
planning, continues to reduce significantly the possibility of material
interruptions in normal operations. Nonetheless, third party failures or
unexpected failures in Alcan's Year 2000 Project could result in business
interruptions or delays that could have a material adverse effect on Alcan's
business and financial condition. Suppliers and customers will generally not
provide any guarantee that they will be Year 2000 compliant.
Costs of the Project are expensed as incurred and, including costs associated
with contingency planning, are estimated at less than $50 million. Costs from
the beginning of the project to September 30, 1999 were $41 million. These
projections do not include any costs associated with business disruptions
involving supplier or customer non-performance. Information received to date
from customers indicates that they do not expect the Year 2000 will create a
major disruption in their business and purchases of product from Alcan.
The information contained in this Year 2000 update is a "Year 2000 Readiness
Disclosure" under the Year 2000 Information and Readiness Disclosure Act of
1998.
THE EURO CURRENCY
Aluminum is a metal traded on the London Metal Exchange (LME) in US dollars. The
great majority of Alcan's sales are at prices based on the LME price and
therefore there is currently no deviation in price between countries in Europe.
The cost of converting the Company's systems to be Euro-compliant is estimated
to be $5 million.
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.
20
<PAGE> 21
PART II. OTHER INFORMATION
ITEMS 1. THROUGH 5.
The registrant has nothing to report under these items.
21
<PAGE> 22
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
The Company has filed two reports on Form 8-K dated August 11,
1999 and September 16, 1999 during the quarter ending September
30, 1999.
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 15, 1999 By: /s/ Glenn R. Lucas
--------------------------
Treasurer
(A Duly Authorized Officer)
22
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C>
(27) Financial Data Schedule.
(99) Cautionary statement for purposes of the "Safe Harbor" provisions of
the Private Securities Litigation Reform Act of 1995. (Filed herewith.)
</TABLE>
23
<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 September 30, 1999 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 440
<SECURITIES> 0
<RECEIVABLES> 1,384
<ALLOWANCES> 0
<INVENTORY> 1,208
<CURRENT-ASSETS> 3,032
<PP&E> 12,703
<DEPRECIATION> 6,513
<TOTAL-ASSETS> 9,759
<CURRENT-LIABILITIES> 1,538
<BONDS> 1,304
0
160
<COMMON> 1,218
<OTHER-SE> 4,014
<TOTAL-LIABILITY-AND-EQUITY> 9,759
<SALES> 5,418
<TOTAL-REVENUES> 5,560
<CGS> 4,254
<TOTAL-COSTS> 4,254
<OTHER-EXPENSES> 351
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 60
<INCOME-PRETAX> 450
<INCOME-TAX> 174
<INCOME-CONTINUING> 267
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 267
<EPS-BASIC> 1.19
<EPS-DILUTED> 1.19
</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,
1999, 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.
