<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 JUNE 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 ____ (check) No ____
At June 30, 1999, the registrant had 217,622,706 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 June 30
(IN MILLIONS OF US$,
EXCEPT PER SHARE AMOUNTS) Second quarter Six months
---------------- ---------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
REVENUES
Sales and operating revenues $1,776 $1,986 $3,598 $3,939
Other income (note 5) 59 19 78 37
------ ------ ------ ------
1,835 2,005 3,676 3,976
------ ------ ------ ------
COSTS AND EXPENSES
Cost of sales and operating 1,396 1,549 2,864 3,046
expenses
Depreciation 117 113 235 223
Selling, administrative and
general expenses 97 113 206 217
Research and development expenses 16 17 32 34
Interest 22 21 44 44
Other expenses (note 7) 45 8 77 18
------ ------ ------ ------
1,693 1,821 3,458 3,582
------ ------ ------ ------
Income before income taxes
and other items 142 184 218 394
Income taxes (note 2) 69 76 103 154
------ ------ ------ ------
Income before other items 73 108 115 240
Equity income (loss) 1 (23) (1) (39)
Minority interests (3) (1) 5 2
------ ------ ------ ------
NET INCOME $ 71 $ 86 $ 109 $ 203
Dividends on preference shares 1 2 4 5
------ ------ ------ ------
NET INCOME ATTRIBUTABLE
TO COMMON SHAREHOLDERS $ 70 $ 84 $ 105 $ 198
------ ------ ------ ------
</TABLE>
2
<PAGE> 3
ALCAN ALUMINIUM LIMITED
INTERIM CONSOLIDATED STATEMENT OF INCOME (cont'd)
(unaudited)
<TABLE>
<CAPTION>
Periods ended June 30
(IN MILLIONS OF US$,
EXCEPT PER SHARE AMOUNTS) Second quarter Six months
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
NET INCOME PER COMMON
SHARE (NOTE 3) $0.32 $0.37 $0.48 $0.87
------ ------ ------ ------
DIVIDENDS PER COMMON SHARE $0.15 $0.15 $0.30 $0.30
------ ------ ------ ------
INTERIM CONSOLIDATED STATEMENT OF RETAINED EARNINGS
(unaudited)
Six months ended June 30
(in millions of US$) 1999 1998
------ ------
RETAINED EARNINGS - BEGINNING OF PERIOD $4,078 $3,556
Net income 109 203
Amount related to common shares
purchased for cancellation 171 -
Dividends - Common 66 68
- Preference 4 5
------ ------
RETAINED EARNINGS - END OF PERIOD $3,946 $3,992
------ ------
</TABLE>
3
<PAGE> 4
ALCAN ALUMINIUM LIMITED
INTERIM CONSOLIDATED BALANCE SHEET
(unaudited for 1999)
<TABLE>
<CAPTION>
(IN MILLIONS OF US$) JUNE 30 DECEMBER 31
1999 1998
------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and time deposits $ 616 $ 615
Receivables 1,461 1,401
Inventories - Aluminum 700 826
- Raw materials 281 345
- Other supplies 213 242
------- -------
1,194 1,413
------- -------
TOTAL CURRENT ASSETS 3,271 3,429
------- -------
Deferred charges and other assets 481 517
Investments 42 58
Property, plant and equipment (note 5)
Cost (excluding Construction
Work in progress) 11,099 11,758
Construction work in progress 1,064 911
Accumulated depreciation 6,369 6,772
------- -------
5,794 5,897
------- -------
TOTAL ASSETS $ 9,588 $ 9,901
------- -------
</TABLE>
4
<PAGE> 5
ALCAN ALUMINIUM LIMITED
INTERIM CONSOLIDATED BALANCE SHEET (cont'd)
(unaudited for 1999)
<TABLE>
<CAPTION>
(IN MILLIONS OF US$, JUNE 30 DECEMBER 31
EXCEPT PER COMMON SHARE AMOUNTS) 1999 1998
------- -----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Payables $1,130 $1,104
Short-term borrowings 85 86
Income and other taxes 57 28
Debt maturing within one year (note 6) 282 166
------ ------
1,554 1,384
------ ------
Debt not maturing within one year 1,318 1,537
Deferred credits and other liabilities 589 604
Deferred income taxes 768 747
Minority interests 111 110
SHAREHOLDERS' EQUITY
Redeemable non-retractable
preference shares 160 160
Common shareholders' equity
Common shares 1,213 1,251
Retained earnings 3,946 4,078
Deferred translation adjustments (71) 30
------ ------
5,088 5,359
------ ------
Total shareholders' equity 5,248 5,519
------ ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $9,588 $9,901
------ ------
COMMON SHAREHOLDERS' EQUITY PER COMMON SHARE $23.38 $23.71
------ ------
RATIO OF TOTAL BORROWINGS TO EQUITY 24:76 24:76
------ ------
</TABLE>
5
<PAGE> 6
ALCAN ALUMINIUM LIMITED
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six months ended June 30
(IN MILLIONS OF US$) 1999 1998
----- -----
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 109 $ 203
Adjustments to determine cash
from operating activities:
Depreciation 235 223
Deferred income taxes 41 33
Equity loss - net of dividends 2 44
Change in operating working capital 95 (183)
Change in deferred charges,
other assets, deferred credits
and other liabilities - net 60 (42)
Gain on sales of businesses - net (42) (1)
Other - net 16 3
----- -----
CASH FROM OPERATING ACTIVITIES 516 280
----- -----
FINANCING ACTIVITIES
New debt 3 8
Debt repayments (57) (14)
----- -----
(54) (6)
Short-term borrowings - net 8 (38)
Common shares purchased for cancellation (219) --
Common shares issued 10 5
Redemption of preference shares -- (43)
Dividends - Alcan shareholders
(including preference) (70) (73)
- Minority interests (3) (1)
----- -----
CASH USED FOR FINANCING ACTIVITIES (328) (156)
----- -----
</TABLE>
6
<PAGE> 7
ALCAN ALUMINIUM LIMITED
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS (cont'd)
(unaudited)
<TABLE>
<CAPTION>
Six months ended June 30
(IN MILLIONS OF US$) 1999 1998
------ ------
<S> <C> <C>
INVESTMENT ACTIVITIES
Property, plant and equipment (478) (292)
Investments -- (2)
Net proceeds from disposal of
businesses and other assets 302 2
------ ------
CASH USED FOR INVESTMENT ACTIVITIES (176) (292)
Effect of exchange rate changes
on cash and time deposits (9) (1)
------ ------
INCREASE (DECREASE) IN CASH AND TIME DEPOSITS 3 (169)
Cash of companies consolidated (deconsolidated) (2) 1
Cash and time deposits - beginning of period 615 608
------ ------
Cash and time deposits - end of period $ 616 $ 440
------ ------
</TABLE>
7
<PAGE> 8
ALCAN ALUMINIUM LIMITED
INFORMATION BY OPERATING SEGMENT *
(unaudited)
<TABLE>
<CAPTION>
Periods ended June 30
(IN MILLIONS OF US$)
SALES AND OPERATING REVENUES OPERATING INCOME
-------------------------------------- ----------------
Second Quarter Second Quarter
-------------- ----------------
Intersector Third parties
----------- -------------
1999 1998 1999 1998 1999 1998
----- ----- ------ ------ ----- ----
<S> <C> <C> <C> <C> <C> <C>
Primary metal group $ 317 $ 360 $ 381 $ 451 $ 31 $100
Global fabrication
group -- -- 1,393 1,533 77 70
Intersegment and
other items (317) (360) 2 2 61 45
----- ----- ------ ------ ---- ----
$ -- $ -- $1,776 $1,986 $169 $215
----- ----- ------ ------ ---- ----
Reconciliation to net income
Equity income (loss) 1 (23)
Corporate offices (8) (9)
Interest (22) (21)
Income taxes (69) (76)
---- ----
NET INCOME $ 71 $ 86
</TABLE>
<TABLE>
<CAPTION>
SALES AND OPERATING REVENUES OPERATING INCOME
-------------------------------------- ----------------
Six months Six months
---------- ----------
Intersector Third parties
----------- -------------
1999 1998 1999 1998 1999 1998
----- ----- ------ ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Primary metal group $ 630 $ 733 $ 790 $ 941 $ 65 $ 256
Global fabrication
group -- -- 2,803 2,993 122 128
Intersegment and
other items (630) (733) 5 5 90 74
----- ----- ------ ------ ----- -----
$ -- $ -- $3,598 $3,939 $ 277 $ 458
----- ----- ------ ------ ----- -----
Reconciliation to net income
Equity income (loss) (1) (39)
Corporate offices (20) (18)
Interest (44) (44)
Income taxes (103) (154)
----- -----
NET INCOME $ 109 $ 203
----- -----
</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
JUNE 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
------ ------ ------ ------
Six months $ 109 $ 105 $ 203 $ 211
------ ------ ------ ------
Net income attributable
to common shareholders $ 105 $ 101 $ 198 $ 206
------ ------ ------ ------
Net income per common share
(basic and diluted) $ 0.48 $ 0.46 $ 0.87 $ 0.91
------ ------ ------ ------
</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
------ ------ ------ ------
Six months n/a $ 32 n/a $ 165
------ ------ ------ ------
Retained earnings
- June 30 $3,946 $3,993 $3,992 $4,033
------ ------ ------ ------
Deferred translation
adjustments - June 30 $ (71) $ (125) $ (3) $ (43)
------ ------ ------ ------
</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>
Second quarter Six months
------------------ -------------------
1999 1998 1999 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
Current $ 25 $ 58 $ 62 $ 121
Deferred 44 18 41 33
----- ----- ----- -----
$ 69 $ 76 $ 103 $ 154
----- ----- ----- -----
</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 the currency
revaluation of deferred income taxes, partially offset by exchange and
reduced rate or tax-exempt items.
In 1998, the difference is attributable to investment and other allowances,
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 (second quarter 1999: 217.5 million;
1998: 227.5 million; six months 1999: 220.1 million; 1998: 227.5 million).
As at June 30 1999, there were 217,622,706 common shares outstanding.
4. SUPPLEMENTARY INFORMATION
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Second quarter Six months
--------------- ----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest paid $ 35 $ 21 $ 68 $ 49
Income taxes paid $ 81 $ 96 $ 83 $ 185
---- ---- ---- -----
</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
--------------- ----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Revenues $949 $996 $1,824 $1,908
Costs and expenses 872 912 1,680 1,759
---- ---- ------ ------
Income before incomes taxes 77 84 144 149
Income taxes 20 33 45 59
---- ---- ------ ------
Net income $ 57 $ 51 $ 99 $ 90
---- ---- ------ ------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30 December 31
1999 1998
------- -----------
<S> <C> <C>
FINANCIAL POSITION
Current assets $ 749 $ 883
Current liabilities 489 483
------ ------
Working capital 260 400
Property, plant and equipment - net 686 714
Other liabilities - net 200 (67)
------ ------
1,146 1,047
Debt not maturing within one year 2 2
------ ------
Net assets $1,144 $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. The gain on the sale of $46 ($26 after tax)
is included in Other income.
6. REDEMPTION OF DEBT
On July 15, 1999, the Company redeemed $132 principal amount of its 9-5/8%
$150 debentures due in 2019. The redemption was at a price of 104.64%.
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
quarter, 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 $31 ($20 after tax) which are included in Other expenses, most of
which will be paid in 1999 and 2000.
8. SUBSEQUENT EVENT
In July 1999, the Company completed the sale of a subsidiary in France. The
gain from the sale will be included in the Company's third quarter results.
9. PRIOR PERIOD AMOUNTS
Certain prior period amounts have been reclassified to conform with the
second quarter 1999 presentation.
In the opinion of management, all adjustments necessary for a fair presentation
of interim period results have been included in the financial statements. These
interim results are not necessarily indicative of results for the full year.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
SECOND SIX FIRST
Highlights (US$ millions, QUARTER MONTHS QUARTER
except per share amounts) ----------- ------------- -------
1999 1998 1999 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Sales and operating revenues 1,776 1,986 3,598 3,939 1,822
Net income 71 86 109 203 38
Net income per common share 0.32 0.37 0.48 0.87 0.16
</TABLE>
The Company reports second quarter consolidated net income of $71 million
compared to $38 million in the previous quarter and $86 million in the second
quarter of 1998. After preference share dividends, net income per common share
for the quarter is 32 cents compared to 16 cents in the first quarter and
37 cents a year earlier.
The results for the quarter include a net non-operating after-tax gain of
$6 million or 3 cents per share. This comprises a gain on the sale of the
Company's piston operations in Germany of $26 million (12 cents per share),
offset in part by restructuring costs of $20 million (9 cents per share)
relating to the Company's Full Business Potential program. The prior year
quarter included restructuring charges in Japan of $16 million or 7 cents
per share.
Earnings showed a strong recovery from the disappointing first quarter with
higher metal prices, improved business conditions in Brazil and record
fabricated products shipments. Alcan continues to focus on growing earnings
from its core businesses as evidenced this quarter by the agreement to acquire
rolling assets in South Korea, the sale of a pistons business in Germany and
the streamlining of corporate offices. Provided the recent recovery in aluminum
prices is sustained, the prospect is for continuing earnings improvement with
increased fabricated product prices as well as improvements generated by the
Full Business Potential program.
<TABLE>
<CAPTION>
SECOND SIX FIRST
QUARTER MONTHS QUARTER
----------- ----------- -------
Volumes (thousands of tonnes) 1999 1998 1999 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Shipments
Ingot products* 209 207 430 409 221
Fabricated products 488 469 949 905 461
Fabrication of customer-owned metal 81 72 147 140 66
----- ----- ----- ----- -----
Total volume 778 748 1,526 1,454 748
===== ===== ===== ===== =====
Ingot product realizations
(US$ per tonne) 1,451 1,591 1,417 1,630 1,385
Fabricated product realizations
(US$ per tonne) 2,520 2,930 2,608 2,969 2,702
</TABLE>
[FN]
* Includes primary and secondary ingot and scrap
</FN>
13
<PAGE> 14
Despite higher sales volumes, sales and operating revenues for the second
quarter were lower than both the first quarter and the year earlier quarter
reflecting lower average fabricated product selling prices.
Total fabricated product volumes, which include products fabricated from
customer-owned metal, reached a record level of 569 thousand tonnes (kt) in the
second quarter, compared to 541 kt in the corresponding quarter of 1998, and
527 kt in the first quarter of 1999.
Average ingot product realizations of $1,451/tonne rose from the first quarter
level due to the improving price on the London Metal Exchange (LME) but remain
$140/tonne below a year ago.
Fabricated product realizations declined from the first quarter level reflecting
the effect of divestments and lower exchange rates, principally in Europe. The
decline compared to a year ago reflected these factors as well as the decline in
underlying metal prices and the time lag in pricing of certain can sheet
contracts.
During the quarter the Company took various steps in the implementation of its
Full Business Potential program. These included a restructuring of head offices,
changes in power operations in Kemano, British Columbia and continuing
integration of European fabricating operations along product streams. Although
reported figures for the first six months indicate a modest improvement in
profitability, the gains from these actions will be realized in the future.
OPERATING SEGMENT REVIEW
The Company reports selected information by major operating segment viewed on a
stand-alone basis. Transactions between operating segments product sectors are
conducted on an arm's length basis and reflect market-related prices. Thus,
income from primary metal operations is mainly profit on metal produced by the
Company, whether sold to third parties or used in the Company's fabricating
operations. Income from fabricated product businesses represents only the
fabricating profit on rolled products and downstream businesses.
<TABLE>
<CAPTION>
SECOND SIX FIRST
QUARTER MONTHS QUARTER
--------------- --------------- -------
(US$ millions) 1999 1998 1999 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating income
Primary metal group* 31 100 65 256 34
Global fabrication group* 77 70 122 128 45
Intersector and other items 61 45 90 74 29
---- ---- ---- ---- ----
169 215 277 458 108
Equity income (loss) 1 (23) (1) (39) (2)
Corporate head office* (8) (9) (20) (18) (12)
Interest (22) (21) (44) (44) (22)
Income taxes (69) (76) (103) (154) (34)
---- ---- ---- ---- ------
Net income 71 86 109 203 38
==== ==== ==== ==== ======
</TABLE>
[FN]
* Corporate office and certain other costs in prior periods have been
allocated to the respective operating segments in line with the new
organization.
</FN>
14
<PAGE> 15
Income for the primary metal group includes a pre-tax charge of $21 million
relating to employee reductions and closure costs arising from the
re-organization initiated during the quarter. The underlying improvement in
operating earnings reflects higher metal prices.
In the global fabrication group, operating profits were ahead of both the first
quarter and a year ago. In North America, sales volume increased 7% over the
first quarter and 4% over the year-ago quarter, but changes in product mix
resulted in earnings ahead of the first quarter and in line with a year earlier.
European shipments showed a further improvement in the second quarter but remain
below the year-ago quarter. Earnings from European operations, though improved
over the first quarter, fell short of the 1998 level, reflecting lower profit
margins. In South America, there has been a solid recovery from the economic
crisis in Brazil with shipments back to normal levels and a return to
profitability. Asia continues to show improved earnings.
"Intersector and other items" includes a pre-tax gain of $46 million on the sale
of the Company's pistons business in Germany and $10 million of restructuring
costs at the corporate head office. 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 $12 million relating
to the currency revaluation of the deferred income tax liability that results
from the stronger Canadian dollar. This compares to $9 million in the first
quarter of 1999. There was no impact on the prior year quarter.
GEOGRAPHIC REVIEW
<TABLE>
<CAPTION>
FIRST
SECOND QUARTER SIX MONTHS QUARTER
--------------- --------------- -------
Net income (Loss) (US$ millions) 1999 1998 1999 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Canada (14) 34 (41) 81 (27)
United States 40 41 74 72 34
South America 8 1 (1) 6 (9)
Europe 23 5 31 29 8
Asia and Pacific 8 (17) 24 (23) 16
Other (including eliminations) 6 22 22 38 16
---- ---- ---- ---- ----
Net income 71 86 109 203 38
==== ==== ==== ==== ====
</TABLE>
In Canada, net income includes a charge of $20 million after tax in respect of
restructuring costs. Excluding this, the improvement over the first quarter
reflects higher primary metal prices.
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 improved substantially as the business
recovered from the effects of the financial crisis in Brazil. Following the
devaluation Brazilian operations are benefiting from lower costs.
European results for the quarter include a gain of $26 million after tax on the
sale of the piston operations in Germany, partly offset by seasonally lower
power sales in the U.K.
Results in the Asia and Pacific region for the quarter reflect lower alumina
prices. The prior year period included rationalization costs in Japan.
15
<PAGE> 16
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
Cash from operating activities during the first half of 1999 was $516 million
compared to $280 million in the comparable period of 1998. The lower net income
in the first six months of 1999 compared to the same period in 1998 was offset
by an improvement in working capital which was reduced by $95 million during
the period. In the first six months of 1998 working capital had risen by
$183 million.
FINANCING ACTIVITIES
Cash used for financing activities in the first half of 1999 was $328 million
compared to $156 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 half of this year debt was reduced by $57
million. The debt:equity ratio at June 30 was 24:76, compared to 25:75 at March
31, 1999 and 21:79 a year ago.
At the end of the second quarter of 1999 the Company had cash and time deposits
of $616 million compared to $440 million a year earlier. On July 15, 1999 the
Company redeemed $132 million principal of its 9 5/8% $150 million debentures
due 2019. The redemption was at a price of 104.64%. The loss on redemption will
be recorded in the third quarter results.
INVESTMENT ACTIVITIES
Capital expenditures during the first half of 1999 were $478 million compared to
$292 million a year earlier. Major projects during the six month period were the
expansion of the rolling mill at Pindamonhangaba, Brazil and the construction of
the Alma, Quebec aluminum smelter.
Net proceeds from the disposal of businesses were $302 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 operations in Germany and, in July, completed the sale of its
building systems business in France.
FINANCIAL INSTRUMENTS - CURRENCY HEDGING FOR ALMA SMELTER
Through a combination of option contracts and forward exchange contracts
totaling $924 million at June 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.
16
<PAGE> 17
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 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.
Remediation of all critical systems was approximately 99% complete at 30 June
1999. Remediation means an item has been repaired or replaced and has been unit
tested or otherwise demonstrated to be compliant. Implementation of remediated
critical systems was approximately 96% complete by 30 June 1999, the target date
in accordance with the Alcan Project for implementation. Implementation involves
putting back into normal operation a remediated system or component and ensuring
that all related supporting infrastructure is in place. Alcan expects to
complete implementation of its remaining remediated critical systems in a timely
manner.
Alcan has surveyed key third party suppliers to address Year 2000 readiness and
to provide it with information for contingency planning. With respect to third
parties, 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 businesses 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 enables
Alcan to deal directly with those power supply risks. The remainder comes
generally from major utilities linked to national grid systems. These major
utilities have reported that they have appropriate year 2000 programs underway
to limit the likelihood of year 2000 related disruptions.
Contingency planning by each business unit, including corporate functions, was
substantially complete by the end of June 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,
increasing finished goods inventory levels, 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. The goal of contingency planning is to minimize the risk
and impact of Year 2000 business interruptions including the impact of such
disruptions from a financial, environmental, property damage and employee
perspective. Such 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 will be tested and refined as additional
information concerning Alcan's year 2000 exposure and opportunities become
available throughout the balance of 1999 and will be implemented and tested
where practical throughout 1999.
17
<PAGE> 18
A risk management and loss prevention engineering company associated with
Alcan's insurers conducted an operations level audit of the contingency plans at
smelters, company-owned power generating stations and other major production
facilities. These audits were helpful in verifying that contingency plans
addressed property damage exposures related to possible loss of power and other
utilities, and the property damage impact of the failure of automated control
equipment. Alcan also 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.
Each business unit has incorporated a quality assurance component into its year
2000 activities and has participated 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 audit
department conducted 72 verification audits in 1998. There are approximately
80 verification audits planned for 1999, of which 49 have been performed as of
30 June 1999.
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 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 repair and replacement of systems at Alcan facilities are expensed as
incurred and are now estimated at less than US$50 million. Costs from the
beginning of the project to 30 June 1999 were US$37 million. Our cost projection
does not include costs associated with contingency planning; however, we do not
expect these costs will have a material adverse effect on Alcan's liquidity,
results of operation or financial condition or represent a significant increase
to the original US$50 million estimate. These projections also 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 commodity traded on the London Metal Exchange (LME) in US dollars.
The great majority of Alcan's sales are priced 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 currently
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 Harbour Provisions of the
Private Securities Litigation Reform Act of 1995" at Exhibit No. 99.
PART II. OTHER INFORMATION
ITEMS 1. THROUGH 5.
The registrant has nothing to report under these items.
18
<PAGE> 19
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 a report on Form 8-K dated 22 April 1999
during the quarter ending 30 June 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: August 6, 1999 By: /s/ Glenn R. Lucas
--------------------------
(A Duly Authorized Officer)
19
<PAGE> 20
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>
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Form
10-Q of Alcan Aluminum Limited for the quarter ended 30 June 1999 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 616
<SECURITIES> 0
<RECEIVABLES> 1,461
<ALLOWANCES> 0
<INVENTORY> 1,194
<CURRENT-ASSETS> 3,271
<PP&E> 12,163
<DEPRECIATION> 6,369
<TOTAL-ASSETS> 9,588
<CURRENT-LIABILITIES> 1,554
<BONDS> 1,318
0
160
<COMMON> 1,213
<OTHER-SE> 3,875
<TOTAL-LIABILITY-AND-EQUITY> 9,588
<SALES> 3,598
<TOTAL-REVENUES> 3,676
<CGS> 2,864
<TOTAL-COSTS> 2,864
<OTHER-EXPENSES> 235
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44
<INCOME-PRETAX> 218
<INCOME-TAX> 103
<INCOME-CONTINUING> 109
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 109
<EPS-BASIC> 0.48
<EPS-DILUTED> 0.48
</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 June 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.
22