MONTREAL, Canada, October 31 /PRNewswire/ --
FINANCIAL HIGHLIGHTS
--------------------
- Income from continuing operations of US$1.21 per common share compared to US$0.19 a year earlier and US$1.21 in the second quarter;
- Operating earnings of US$1.22 per common share compared to US$0.53 a year earlier and US$1.48 in the second quarter;
- Record cash from operating activities in continuing operations of US$803 million, up from US$655 million a year earlier and US$771 million in the second quarter;
- Selling, General and Administrative expenses at US$327 million or 5.7% of revenues, down from 6.8% a year earlier and 6.0% last quarter.
Alcan Inc. (NYSE: AL , TSX: AL) today reported operating earnings of US$1.22 per common share in the third quarter of 2006 compared to US$0.53 a year ago and US$1.48 in the seasonally strong second quarter.
"Operating cash flow reached an all-time high of US$803 million, and we recorded the strongest third-quarter earnings performance in Alcan's history," said Dick Evans, President and CEO. "We have worked hard to reduce costs, restructure businesses and upgrade our portfolio, and the effort is paying off. Our focus is squarely on managing for cash and real economic value, with the financial rigour and management systems to deliver ," he continued.
"Alcan's recent dividend increase and share repurchase announcements reflect our confidence in the company's prospects and commitment to superior returns. We intend to maintain a disciplined approach to capital allocation balancing growth, returns to shareholders and balance-sheet strength. With aluminum market fundamentals expected to remain firm and normal seasonal patterns in cash flow, we expect fourth-quarter cash from operations to be even stronger," he concluded. <start-table>
MONTREAL, Canada, October 31 /PRNewswire/ --
(x) Note: All amounts in this press release are expressed in U.S dollars
unless otherwise stated. This press release includes a number of
measures for which no meaning is prescribed by generally accepted
accounting principles (GAAP). Refer to the section "Definitions" for
an explanation of these measures.
------------------------------------------------------------------------
Second Nine Months Ended
Third Quarter Quarter September 30
-----------------------------------------------
(US$ millions, except
where indicated) 2006 2005 2006 2006 2005
------------------------------------------------------------------------
Operating earnings -
excluding foreign
currency balance sheet
translation and Other
Specified Items 461 197 556 1,490 706
Foreign currency balance
sheet translation - (115) (100) (109) (81)
Other Specified Items
(OSIs) (1) (10) (2) (13) (137)
-----------------------------------------------
Income from continuing
operations 460 72 454 1,368 488
Income (Loss) from
discontinued operations (4) 9 1 - 2
Cumulative effect of
accounting change - - - (4) -
-----------------------------------------------
Net income 456 81 455 1,364 490
-----------------------------------------------
Basic earnings per common
share (US$ per common share)
Operating earnings 1.22 0.53 1.48 3.96 1.89
Income from continuing
operations 1.21 0.19 1.21 3.63 1.30
Net income 1.20 0.21 1.21 3.62 1.31
Average number of common
shares outstanding
(millions) 376.1 370.3 375.1 374.7 370.2
------------------------------------------------------------------------
Operating Earnings
Operating earnings from continuing operations exclude foreign currency balance sheet translation effects and Other Specified Items (OSIs). Operating earnings of US$461 million in the third quarter of 2006 were US$264 million higher than in the comparable quarter a year ago. The improvement mainly reflected higher aluminum prices partly offset by increased raw materials and energy costs, as well as the negative impact of a stronger Canadian dollar. Compared to the second quarter of 2006, operating earnings were down US$95 million due to lower metal prices and volumes, and higher input costs in Packaging, partly offset by better pricing and mix in Engineered Products.
Included in operating earnings for the third quarter of 2006 were mark- to-market gains on derivatives of US$0.03 per common share as compared to losses of US$0.04 a year earlier and gains of US$0.03 in the second quarter of 2006.
Net Income
Including OSIs, foreign currency balance sheet translation, and discontinued operations, net income was US$456 million or US$1.20 per common share for the third quarter.
Sales and Operating Revenues
------------------------------------------------------------------------
Second Nine Months Ended
Third Quarter Quarter September 30
-----------------------------------------------
(US$ millions, except
where indicated) 2006 2005 2006 2006 2005
------------------------------------------------------------------------
Sales & operating
revenues (US$M) 5,769 4,887 6,103 17,422 15,271
Volumes (Kt)
Ingot products(x) 728 801 765 2,242 2,269
Aluminum used in
engineered products
& packaging 323 311 341 1,001 974
-----------------------------------------------
Total aluminum volume 1,051 1,112 1,106 3,243 3,243
Aluminum pricing data
(US$ per tonne)
Ingot product
realizations(x) 2,598 1,959 2,709 2,587 2,017
Average LME 3-month
price (1-month lag) 2,528 1,811 2,661 2,519 1,843
------------------------------------------------------------------------
(x) The bulk of Alcan's ingot product sales are based on the LME 3-month
price with a one month lag plus a local market premium and any
applicable product premium.
------------------------------------------------------------------------
Sales and operating revenues of US$5,769 million were up US$882 million
compared to the year-ago quarter mainly reflecting higher aluminum prices,
and favourable pricing, mix and volume in downstream businesses. Compared
to the second quarter of 2006, sales and operating revenues declined by US$
334 million mainly as a result of lower metal prices and volumes, partially
offset by pricing and mix improvements in Engineered Products.
Total aluminum volume was down 61kt from the year-ago quarter mainly
due to lower sales in Europe, reflecting the closure of the Steg smelter in
Switzerland and the production interruption at the ISAL smelter in Iceland.
Volumes were down 55kt sequentially also as result of lower sales in Europe
, including the impact of lost production at the ISAL smelter.
The average realized price on sales of ingot products during the third
quarter was up US$639 per tonne from the year-ago quarter and down US$111 per
tonne from the second quarter of 2006. The increase over the year-ago
quarter reflected the impact of higher LME aluminum prices while the
sequential quarter decline reflected lower aluminum prices.
Cash Flow and Debt
------------------------------------------------------------------------
Second Nine Months Ended
Third Quarter Quarter September 30
-----------------------------------------------
(US$ millions, except
where indicated) 2006 2005 2006 2006 2005
------------------------------------------------------------------------
Cash flow from operating
activities in continuing
operations 803 655 771 1,936 747
Dividends (79) (59) (59) (197) (175)
Capital expenditures (576) (405) (469) (1,471) (1,103)
-----------------------------------------------
Free cash flow from
continuing operations 148 191 243 268 (531)
------------------------------------------------------------------------
Cash flow from operating activities in continuing operations increased
by US$148 million compared to the year-ago quarter. The increase mainly
reflected higher earnings, partially offset by an unfavourable change in
working capital largely attributable to receivables and inventory
valuations based on higher metal prices. Debt as a percentage of invested
capital as at September 30, 2006 was at 33%, down from 35% at the end of
the second quarter.
REVIEW OF BUSINESS GROUP PROFIT AND CORPORATE ITEMS
---------------------------------------------------
------------------------------------------------------------------------
Second Nine Months Ended
Third Quarter Quarter September 30
-----------------------------------------------
(US$ millions) 2006 2005 2006 2006 2005
------------------------------------------------------------------------
Business Group Profit (BGP)
Bauxite and Alumina 198 98 126 453 306
Primary Metal 675 364 774 2,207 1,220
Engineered Products 101 106 144 399 322
Packaging 161 157 134 441 490
-----------------------------------------------
Subtotal 1,135 725 1,178 3,500 2,338
-----------------------------------------------
Equity accounted joint
venture eliminations (87) (61) (86) (244) (212)
Change in fair market
value of derivatives 16 (19) 7 37 11
-----------------------------------------------
1,064 645 1,099 3,293 2,137
Corporate Items
Intersegment, corporate
offices and other (159) (131) (159) (425) (379)
Depreciation &
amortization (273) (266) (258) (782) (806)
Interest (63) (92) (69) (208) (267)
Income taxes (146) (101) (195) (610) (269)
Equity income 41 16 37 106 73
Minority interests (4) 1 (1) (6) (1)
-----------------------------------------------
Income from continuing
operations 460 72 454 1,368 488
------------------------------------------------------------------------
Business Group Profit (BGP)
Bauxite and Alumina: BGP for the third quarter was a record high of
US$198Â million, an increase of US$100 million compared to the year-ago
quarter. Excluding OSIs and balance sheet translation effects, the
year-over-year increase in BGP was US$76 million or 63%. This improvement
mainly reflected higher LME-linked contract prices for alumina (reflecting
the normal one-quarter lag) and insurance recoveries of US$36 million related
to production losses at Gove during the past year, partially offset by lower
volumes, mainly at QAL, commercial activities and higher operating and raw
material costs. Because most of the insurance claims were made against
Alcan's internal insurance company, they were largely offset on a
consolidated basis through a corresponding charge at the corporate level (see
Corporate Items below). On a sequential basis, BGP for the B&A group was
US$72 million above the previous quarter. Excluding OSIs and balance sheet
translation effects, BGP increased by US$52 million or 36% reflecting higher
LME-linked contract prices and insurance benefits at Gove. Results for the
fourth quarter of 2006 are expected to be lower than the third quarter as a
result of lower LME-linked contract prices and the non-recurrence of
insurance recoveries recorded in the third quarter.
Primary Metal: BGP for the third quarter at US$675 million increased by
US$311 million as compared to the year-ago quarter. The improvement mainly
reflected the higher LME price, partially offset by the impact of higher
input costs due mainly to alumina prices, energy costs and fuel-related raw
materials, as well as lower metal shipments, mainly in Europe. The latter
included the impact of closing the Steg smelter in Switzerland. On a
sequential quarter basis, BGP decreased by US$99 million or 13%, mainly
reflecting the 5% drop in LME prices, higher input costs due to the one-
quarter lag in alumina prices, and higher energy and other fuel-related raw
materials costs. These increases were partly offset by lower operating
costs. Based on current metal prices, results for the fourth quarter of
2006 are expected to increase slightly as higher metal prices are partly
offset by seasonal increases in scheduled maintenance.
Engineered Products: BGP for the third quarter was US$101 million, down
US$5Â million or 5% from the year-ago third quarter. The negative year-over-
year impact of higher costs for purchased aluminum and other key inputs was
largely offset by strong performances from the group's Cable and Composites
businesses, which were buoyed by robust pricing and demand. On a sequential
quarter basis, BGP declined US$43 million or 30% mainly due to normal summer
slowing in Europe and an absence of the metal inventory timing benefits
that had contributed to results in the second quarter, offset in part by
stronger pricing and mix, mainly in Cable. With a normal seasonal pick-up
in demand anticipated in Europe, results for the fourth quarter are
expected to be moderately higher than the third quarter.
Packaging: BGP in the third quarter of US$161 million was up US$4
million or 2% from the prior year quarter. Excluding the impact of OSIs,
foreign currency balance sheet translation effects and lost contributions
from divested businesses, BGP improved by US$10 million or 6%. Growth across
most businesses and cost reduction programs more than offset the adverse
impact of raw material price increases, mainly in aluminum. On a sequential
quarter basis, BGP improved by US$27 million or 20%. Excluding the impact of
OSIs and balance sheet translation, BGP improved by US$3 million or 2%.
Normal seasonal volume weakness and negative timing differences on the pass
through of raw-material costs were more than offset by the benefits of
restructuring and cost-reduction programs. For the fourth quarter of 2006,
BGP is expected to be lower mainly due to seasonal volume declines and
planned maintenance shut-downs.
Corporate Items
The Intersegment, corporate offices and other expense category
includes corporate head office costs as well as other non-operating items
and the elimination of profits on intersegment sales of aluminum. Included
in this category was a US$30 million inter-company charge from the Bauxite
and Alumina group to Alcan's internal insurance company for claims related
to lost production at the Gove refinery during the past year.
Depreciation and amortization expenses were US$7 million higher than in
the year-ago quarter and US$15 million higher than in the second quarter,
primarily reflecting an adjustment to charges at the Lynemouth smelter in
the United Kingdom.
Interest expense, net of capitalized interest, was US$29 million lower
than in the year-ago quarter reflecting a higher level of capitalized
interest as well as lower debt levels. In the third quarter, capitalized
interest was US$22Â million, mainly related to the Gove expansion, compared to
US$8 million a year ago. Compared to the second quarter, interest expense
declined US$6 million due mainly to lower debt levels and capitalized
interest.
The Company's effective tax rate on income from continuing operations
was 26% in the third quarter and 32% year to date. The effective tax rate
was favourably impacted in the quarter as a result of settling a number of
open taxation years with various tax authorities. This impact has been
reported in Other Specified Items.
Share Repurchase Program
In accordance with its announcement on October 3, 2006, Alcan has
established a share repurchase program. The Company will purchase up to
18,800,000 Common Shares, representing approximately 5% of the outstanding
Common Shares at October 27, 2006, i.e. 376,407,558 Common Shares under a
Normal Course Issuer Bid. The Common Shares purchased under the program
will be cancelled.
Purchases may be made on the Toronto Stock Exchange and the New York
Stock Exchange. Purchases could, if considered advisable by the Company,
commence on November 2, 2006 and will terminate at the latest on November 1
, 2007.
The Company considers the purchase and cancellation of Common Shares
under this program to be an appropriate and desirable investment for Alcan.
From time to time, when Alcan does not possess material non-public
information about itself or its securities, it may enter into a pre-
determined plan with its securities broker to allow for the repurchase of
Shares at times when Alcan ordinarily would not be active in the market due
to its own internal calendar-based restricted trading policies. Any such
plans entered into with Alcan's securities broker will be adopted in
accordance with the requirements of applicable Canadian securities laws and
Rule 10b5-1 under the U.S. Securities Exchange Act of 1934.
OUTLOOK
-------
For 2006, world primary aluminum consumption is forecast to increase
by approximately 6.7% (4.6% in 2005), while production from new capacity
and restarts is expected to increase world supply by about 5.7% (7.0% in
2005). As a consequence, the Company continues to expect a market deficit
of approximately 300 thousand tonnes in 2006 versus the balanced situation
in 2005. Although a formal estimate has not been made for 2007, Alcan
expects tight market conditions to persist with any surplus or deficit
unlikely to exceed about 200 thousand tonnes.
KEY EARNINGS SENSITIVITIES
--------------------------
The following table provides Alcan estimates of the annualized after-
tax impact of currency and LME price movements on income from continuing
operations, net of hedging and forward sales.
In US$ /
Increase in millions common
rate / price of US$ share
------------------------------------------------------------------------
Economic impact of changes in
period-average exchange rates
European currencies US$ 0.10 (56) (0.15)
Canadian dollar US$ 0.10 (110) (0.29)
Australian dollar US$ 0.10 (40) (0.11)
------------------------------------------------------------------------
Balance sheet translation impact of
changes in period-end exchange rates
Canadian dollar US$ 0.10 (160) (0.43)
Australian dollar US$ 0.10 (30) (0.08)
------------------------------------------------------------------------
Economic impact of changes in
period-average LME prices(x)
Aluminum US$100/t 170 0.45
------------------------------------------------------------------------
(x) Realized prices generally lag LME price changes by one month.
Changes in local and regional premia may also impact aluminum price
realizations. Sensitivities are updated as required to reflect
changes in the Company's commercial arrangements and portfolio of
operations. Not included are sensitivities to energy and
raw-material prices, which may have significant impacts.
Cautionary Statement
--------------------
Statements made in this quarterly earnings
press release 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 securities laws 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. All statements that
address the Company's expectations or projections about the future
including statements about the Company's growth,
cost reduction goals, operations, reorganization plans, expenditures and
financial results are forward-looking statements. Such statements may be
based on the Company's own research and analysis. The Company cautions that
, by their nature, forward-looking statements involve risk and uncertainty
and that the Company's actual actions or 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. Reference
should be made to the Company's most recent Annual Report on Form 10-K for
a list of factors that could cause such differences.
Important factors which could cause such differences include: changes
in global supply and demand conditions for aluminum and other products;
changes in aluminum ingot prices and changes in raw material costs and
availability; changes in the relative value of various currencies; 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; fluctuations in the supply of
and prices for power in the areas in which the Company maintains production
facilities; the consequences of transferring most of the aluminum rolled
products businesses operated by the Company to Novelis Inc.; potential
discovery of unanticipated commitments or other liabilities associated with
the acquisition and integration or disposition of businesses; major changes
in technology that affect the Company's competitiveness; the risk of
significant losses from trading operations, including losses due to market
and credit risks associated with derivatives; changes in prevailing
interest rates and equity market returns related to pension plan
investments; potential catastrophic damage, increased insurance and
security costs and general uncertainties associated with the increased
threat of terrorism or war; the effect of international trade disputes on
the Company's ability to import materials, export its products and compete
internationally; economic, regulatory and political factors within the
countries in which the Company operates or sells its products;
relationships with, and financial and operating conditions of, customers
and suppliers; the effect of integrating acquired businesses and the
ability to attain expected benefits; and; other factors affecting the
Company's operations including, but not limited to, litigation, labour
relations and negotiations and fiscal regimes.
The Company undertakes no obligation to release publicly the results
of any future revisions it may make to forward-looking statements to
reflect events or circumstances after the date of this press release or to
reflect the occurrence of unanticipated events. Furthermore, the Company
undertakes no obligation, in relation to future quarterly earnings
disclosures, to release publicly any information on an interim basis prior
to the final earnings disclosure.
DEFINITIONS
-----------
"US$" all amounts are in U.S. dollars.
"Business Group Profit" (BGP) comprises earnings before interest,
income taxes, minority interests, depreciation and amortization and
excludes certain items, such as corporate costs, pension actuarial gains
and losses and other adjustments, as well as certain OSIs (definition below
) including restructuring costs (relating to major corporate-wide
acquisitions or initiatives), impairment and other special charges that are
not under the control of the business groups or are not considered in the
measurement of their profitability. These items are generally managed by
the Company's corporate head office, which focuses on strategy development
and oversees governance, policy, legal, compliance, human resources and
finance matters. Financial information for individual business groups
includes the results of certain joint ventures and other investments
accounted for using the equity
method on a proportionately consolidated basis, which is consistent with the
way the business groups are managed. However, the BGP of these joint
ventures and equity-accounted investments is removed from total BGP for the
Company and the net after-tax results are reported as equity income. The
change in the fair market value of derivatives has been removed from
individual business group results and is shown on a separate line within
total BGP. This presentation provides a more accurate portrayal of
underlying business group results and is in line with the Company's
portfolio approach to risk management.
"Debt as a percentage of invested capital" does not have a uniform
definition. Because other issuers may calculate debt as a percentage of
invested capital differently, Alcan's calculation may not be comparable to
other companies' calculations. The figure is calculated by dividing
borrowings by total invested capital. Total invested capital is equal to
the sum of borrowings and equity, including minority interests. The Company
believes that debt as a percentage of invested capital can be a useful
measure of its financial leverage as it indicates the extent to which it is
financed by debt holders. The measure is widely used by the investment
community and credit rating agencies to assess the relative amounts of
capital put at risk by debt holders and equity investors.
"Derivatives" including forward contracts, swaps and options are
financial instruments used by the Company to manage the specific risks
arising from fluctuations in exchange rates, interest rates, aluminum
prices and other commodity prices. Mark-to-market gains and losses on
derivatives will be offset over time by gains and losses on the underlying
exposures.
"Foreign currency balance sheet translation" effects largely arise
from translating monetary items (principally deferred income taxes and long-
term liabilities) denominated in Canadian and Australian dollars into U.S.
dollars for reporting purposes. Although these effects are primarily non-
cash in nature, they can have a significant impact on the Company's net
income.
"Free cash flow from continuing operations" consists of cash from
operating activities in continuing operations less capital expenditures and
dividends. Management believes that free cash flow, for which there is no
comparable GAAP measure, is relevant to investors as it provides an
indication of the cash generated internally that is available for
investment opportunities and debt service.
"GAAP" refers to Generally Accepted Accounting Principles.
"LME" refers to the London Metal Exchange.
"Other Specified Items" (OSIs) include, for example: restructuring and
synergy charges; asset impairment charges; gains and losses on non-routine
sales of assets, businesses or investments; unusual gains and losses from
legal claims and environmental matters; gains and losses on the redemption
of debt; income tax reassessments related to prior years and the effects of
changes in income tax rates; and other items that, in Alcan's view, do not
typify normal operating activities.
"Operating earnings from continuing operations" is presented in
addition to income from continuing operations and reported net income.
Operating earnings from continuing operations are not calculated in
accordance with U.S. GAAP and there is no standard definition of this term.
Accordingly, it is unlikely that comparisons can be made among different
companies that make operating earnings information available. The
determination of whether an item is treated as an Other Specified Item
involves the exercise of judgement by Alcan management. The Company
believes that operating earnings from continuing operations is a useful
measure because it excludes items that are not typical of ongoing operating
activities, such as Other Specified Items, as well as items that are
outside management's control, such as the impact of foreign currency
balance sheet translation. Management has concluded that operating
earnings is a relevant measure for shareholders and other investors as it
removes the inherent volatility of such items, whether favourable or
unfavourable, and provides a clearer picture of underlying business
performance. Moreover, the measure is in line with the Company's internal
performance measurement and management systems. Operating earnings
information has historically been presented in response to requests from
investors and financial analysts, who have indicated that they find the
information highly relevant and essential to their understanding of the
Company.
All tonnages are stated in metric tonnes, equivalent to 2,204.6 pounds.
All figures are unaudited.
QUARTERLY RESULTS WEBCAST
-------------------------
Alcan's quarterly results conference call with investors and analysts
will take place on Tuesday, October 31, 2006 at 10:00 a.m. EDT and will be
webcast via the Internet at www.alcan.com.
Supporting documentation (press release, financial statements and
investor presentation) is available at www.alcan.com, using the Investors
link. Miscellaneous and previous years' filings may be accessed using the
following links to the www.sec.gov (U.S.) and www.sedar.com (Canada)
websites.
ALCAN INC.
----------
Alcan Inc. (NYSE, TSX: AL) is a leading global materials company,
delivering high quality products and services worldwide. With world-class
technology and operations in bauxite mining, alumina processing, primary
metal smelting, power generation, aluminum fabrication, engineered
solutions as well as flexible and specialty packaging, today's Alcan is
well positioned to meet and exceed its customers' needs. Alcan is
represented by 65,000 employees in 61 countries and regions, and posted
revenues of US$20.3 billion in 2005. The Company has featured on the Dow
Jones Sustainability World Index consecutively since 2003. For more
information, please visit: www.alcan.com.
ALCAN INC.
----------
INTERIM CONSOLIDATED STATEMENT OF INCOME (unaudited)
------------------------------------------------------------------------
Third Quarter Nine Months
-------------------------------------
Periods ended September 30 2006 2005 2006 2005
-------------------------------------
-------------------------------------
(in millions of USUS$, except
per share amounts)
Sales and operating revenues 5,769 4,887 17,422 15,271
Costs and expenses
Cost of sales and operating
expenses, excluding
depreciation and amortization
noted below 4,454 3,921 13,228 12,141
Depreciation and amortization 273 266 782 806
Selling, administrative and
general expenses 327 331 1,057 1,056
Research and development expenses 50 66 157 164
Interest 63 92 208 267
Restructuring charges - net 22 32 130 142
Other expenses (income) - net 11 23 (18) 10
-------------------------------------
5,200 4,731 15,544 14,586
-------------------------------------
Income from continuing operations
before income taxes and
other items 569 156 1,878 685
Income taxes 146 101 610 269
-------------------------------------
Income from continuing operations
before other items 423 55 1,268 416
Equity income 41 16 106 73
Minority interests (4) 1 (6) (1)
-------------------------------------
Income from continuing operations 460 72 1,368 488
Income (Loss) from discontinued
operations (4) 9 - 2
-------------------------------------
Income before cumulative effect of
accounting change 456 81 1,368 490
Cumulative effect of accounting
change, net of income taxes
of US$2 (nil in 2005)(note 4) - - (4) -
-------------------------------------
Net income 456 81 1,364 490
Dividends on preference shares 3 2 8 5
-------------------------------------
Net income attributable to common
shareholders 453 79 1,356 485
-------------------------------------
-------------------------------------
Earnings (Loss) per share
Basic:
Income from continuing operations 1.21 0.19 3.63 1.30
Income (Loss) from discontinued
operations (0.01) 0.02 - 0.01
Cumulative effect of accounting
change - - (0.01) -
-------------------------------------
Net income per common share - basic 1.20 0.21 3.62 1.31
-------------------------------------
-------------------------------------
Diluted:
Income from continuing operations 1.21 0.19 3.62 1.30
Income (Loss) from discontinued
operations (0.01) 0.02 - 0.01
Cumulative effect of accounting
change - - (0.01) -
-------------------------------------
Net income per common share -
diluted 1.20 0.21 3.61 1.31
-------------------------------------
-------------------------------------
Dividends per common share 0.20 0.15 0.50 0.60
-------------------------------------
-------------------------------------
ALCAN INC.
----------
INTERIM CONSOLIDATED BALANCE SHEET (unaudited)
------------------------------------------------------------------------
September December
30, 2006 31, 2005
--------------------
--------------------
(in millions of USUS$)
ASSETS
------
Current assets
Cash and time deposits 158 181
Trade receivables (net of allowances of US$57
in 2006 and US$56 in 2005) 2,944 2,308
Other receivables 1,205 946
Deferred income taxes 192 150
Inventories 3,104 2,734
Current assets held for sale 15 119
--------------------
Total current assets 7,618 6,438
--------------------
Deferred charges and other assets 1,233 1,052
Investments 1,491 1,511
Deferred income taxes 862 863
Property, plant and equipment
Cost (excluding Construction work in progress) 17,529 16,990
Construction work in progress 2,673 1,604
Accumulated depreciation (8,369) (7,561)
--------------------
11,833 11,033
--------------------
Intangible assets (net of accumulated amortization
of US$316 in 2006 and US$233 in 2005) 976 1,013
Goodwill 4,635 4,713
Long-term assets held for sale 2 15
--------------------
Total assets 28,650 26,638
--------------------
--------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities
Payables and accrued liabilities 4,992 4,608
Short-term borrowings 346 348
Debt maturing within one year 40 802
Deferred income taxes 28 25
Current liabilities of operations held for sale 11 62
--------------------
Total current liabilities 5,417 5,845
--------------------
Debt not maturing within one year 5,399 5,265
Deferred credits and other liabilities 1,753 1,608
Post-retirement benefits 3,224 3,037
Deferred income taxes 1,337 1,172
Minority interests 67 67
Shareholders' equity
Redeemable non-retractable preference shares 160 160
Common shareholders' equity
Common shares 6,381 6,181
Additional paid-in capital 673 683
Retained earnings 4,208 3,048
Common shares held by a subsidiary (31) (31)
Accumulated other comprehensive income (loss) 62 (397)
--------------------
11,293 9,484
--------------------
11,453 9,644
--------------------
Total liabilities and shareholders' equity 28,650 26,638
--------------------
--------------------
ALCAN INC.
----------
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
------------------------------------------------------------------------
Third Quarter Nine Months
-------------------------------------
Periods ended September 30 2006 2005 2006 2005
-------------------------------------
-------------------------------------
(in millions of USUS$)
OPERATING ACTIVITIES
Net income 456 81 1,364 490
Cumulative effect of accounting
change - - 4 -
Loss (Income) from discontinued
operations 4 (9) - (2)
-------------------------------------
Income from continuing operations 460 72 1,368 488
Adjustments to determine cash from
operating activities:
Depreciation and amortization 273 266 782 806
Deferred income taxes 73 86 300 128
Equity income, net of dividends (17) (5) (35) (29)
Asset impairment charges 12 5 57 40
Loss (Gain) on disposal of
businesses and investments - net (4) (5) (8) 11
Stock option compensation 3 4 39 14
Change in operating working capital
Change in receivables 151 325 (605) (250)
Change in inventories (164) 26 (273) (88)
Change in payables and accrued
liabilities (4) (72) 126 (391)
Change in deferred charges, other
assets, deferred credits and
other liabilities, and
post-retirement benefits - net 21 (13) 188 137
Other - net (1) (34) (3) (119)
-------------------------------------
Cash from operating activities in
continuing operations 803 655 1,936 747
Cash from operating activities in
discontinued operations 1 4 9 54
-------------------------------------
Cash from operating activities 804 659 1,945 801
-------------------------------------
FINANCING ACTIVITIES
Proceeds from issuance of new debt
- net of issuance costs 9 21 380 1,237
Debt repayments (250) (210) (1,086) (1,456)
Short-term borrowings - net (13) (52) (13) (2,045)
Common shares issued 3 6 152 16
Dividends - Alcan shareholders
(including preference) (78) (58) (195) (173)
- Minority interests (1) (1) (2) (2)
-------------------------------------
Cash used for financing activities
in continuing operations (330) (294) (764) (2,423)
Cash used for financing activities
in discontinued operations - (59) - (55)
-------------------------------------
Cash used for financing activities (330) (353) (764) (2,478)
-------------------------------------
INVESTMENT ACTIVITIES
Purchase of property, plant
and equipment (576) (405) (1,471) (1,103)
Business acquisitions and purchase
of investments, net of cash
and time deposits acquired (8) (31) (48) (73)
Net proceeds from disposal of
businesses, investments and
other assets 27 141 234 176
Settlement of amounts due from
Novelis - net - - - 2,535
Other 58 - 70 -
-------------------------------------
Cash from (used for) investment
activities in continuing operations (499) (295) (1,215) 1,535
Cash from (used for) investment
activities in discontinued
operations - (1) 5 63
-------------------------------------
Cash from (used for) investment
activities (499) (296) (1,210) 1,598
-------------------------------------
Effect of exchange rate changes on
cash and time deposits 1 4 6 (25)
-------------------------------------
Increase (Decrease) in cash and
time deposits (24) 14 (23) (104)
Cash and time deposits - beginning
of period 182 222 181 340
-------------------------------------
Cash and time deposits - end
of period 158 236 158 236
-------------------------------------
-------------------------------------
ALCAN INC.
----------
(in millions of USUS$)
1. BASIS OF PRESENTATION
The unaudited interim consolidated financial information is based upon
accounting policies and methods of their application consistent with those
used and described in the Company's annual financial statements as
contained in the most recent annual report. The unaudited interim
consolidated financial information does not include all of the financial
statement disclosures included in the annual and quarterly financial
statements prepared in accordance with accounting principles generally
accepted in the United States of America (U.S. GAAP) and therefore should
be read in conjunction with the Company's most recent annual report as well
as the quarterly report (Form 10-Q) for the period ended September 30, 2006
that the Company expects to file on November 9, 2006.
In the opinion of management of the Company, the unaudited interim
consolidated financial information reflects all adjustments, which consist
only of normal and recurring adjustments, necessary to present fairly the
financial position and the results of operations and cash flows in
accordance with U.S. GAAP. The results reported in this unaudited interim
consolidated financial information are not necessarily indicative of the
results that may be expected for the entire year.
2. DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
Bauxite and Alumina and Primary Metal
-------------------------------------
On March 31, 2006, the balance of the Company's interest in Aluminium
de Grece S.A. (AdG) of 7.2% was sold by the Company to Mytilineos Holdings
S.A. for net proceeds of US$13.
Engineered Products
-------------------
In the first quarter of 2004, the Company had committed to a plan to
sell certain non-strategic assets that were not part of its core operations
. The assets were used to supply castings and components to the automotive
industry. On March 31, 2006, the Company sold these assets to AluCast GmbH
for net proceeds of approximately nil.
3. CAPITALIZATION OF INTEREST COSTS
Total interest costs in continuing operations in the third quarter and
nine months of 2006 were US$85 and US$264, respectively (2005: US$100 and
US$285), of which US$22 and US$56, respectively (2005: US$8 and US$18), were
capitalized.
4. ACCOUNTING CHANGES
SFAS 123(R) - Share-Based Payment
---------------------------------
On January 1, 2006, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 123(R), Share-Based Payment, which is a
revision to SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No.
123(R) requires all share-based payments to employees to be recognized in
the financial statements based on their fair values. The fair value of
options granted after January 1, 2006 is determined using a lattice model,
whereas the fair value of options granted prior to that date was determined
using the Black-Scholes valuation model. The Company had previously adopted
the fair-value based method of accounting for stock options using the
retroactive restatement method described in SFAS No. 148, Accounting for
Stock-Based Compensation - Transition and Disclosure, effective January 1,
2004. This method is accepted under SFAS No. 123(R).
On January 1, 2006, the Company recorded an after-tax charge of US$4,
using the modified prospective application method, in Cumulative effect of
accounting change, to record all outstanding liability awards, previously
measured at their intrinsic value, at their fair value.
5. SALES AND ACQUISITIONS OF BUSINESSES AND INVESTMENTS AND
RESTRUCTURING ACTIVITIES
Acquisitions
------------
On January 3, 2006, the Company announced that it has acquired the
packaging assets and business of Recubrimientos y Laminaciones de Papel, S.
A. de C.V. (Relapasa), of Monterrey, Mexico for US$22.
On March 10, 2006, the Company acquired the operating assets of Daifu
Industries Co. Ltd. of Phetchaburi, Thailand, a leading supplier of foil
and plastic lidding for food packaging in Thailand, offering prepress,
printing, laminating, hot melt coating, embossing and die cutting, for an
initial investment of US$8. An additional amount of US$3 was paid during the
second and third quarters of 2006 (Q2: US$1; Q3: US$2) based on the audited
value of the acquiree's assets.
During the second quarter of 2006, the Company increased its ownership
in Alcan Packaging Mohammedia to 97.2% by purchasing an additional 34.4%
for US$8. Alcan Packaging Mohammedia, located in Morocco, is specialized in
dairy packaging.
Sales
-----
On February 7, 2006, the Company completed the sale of its Froges,
France, rolling mill to Industrie Laminazione Alluminio S.p.A based in
Sardinia, Italy, for net proceeds of (US$5), resulting in a gain on disposal
of US$1.
In March 2006, the Company completed the sale of selected assets of
its North American Food Packaging Plastic Bottle business to Ball
Corporation for net proceeds of US$182, resulting in a loss on disposal of
US$4.
On March 2, 2006, the Company completed the sale of its high-purity
activity at the Mercus processing mill in France to Praxair Inc. for net
proceeds of US$2, resulting in a gain on disposal of US$2.
On March 2, 2006, the Company completed the sale of its food packaging
plant in Zaragoza, Spain, to Kostova System S.L. for net proceeds of US$7,
resulting in a gain on disposal of US$1. During the fourth quarter of 2005,
the Company had recorded an impairment charge of US$4 as a result of the
expected divestiture.
In June 2006, the Company completed the sale of its Chambéry, France,
operation to Compagnia Generale Alluminio S.p.A. for net proceeds of US$8,
resulting in no gain or loss on disposal. Chambéry manufactures Rollbond
panels used primarily as fluid circulators in refrigeration units. During
the first quarter of 2006, the Company had recorded an impairment charge of
US$2 based on the expected divestiture.
On June 9, 2006, the Company completed the sale of its Lir France
beauty packaging facility in France for net proceeds of (US$3), resulting in
a gain on disposal of US$1. A provision of US$9 was recorded in the fourth
quarter of 2005 based on the expected loss on disposal.
On July 10, 2006, the Company completed the sale of its 51% ownership
in the joint venture Baotou Pechiney and Baolu High Purity Aluminium Company
Limited, located in China, for net proceeds of US$3, resulting in a gain on
disposal of US$4.
On July 28, 2006, the Company completed the sale of its Cebal Aerosol
business to its current management team and to Natexis Investissement
Partners, a part of Natexis Private Equity investment fund for net proceeds
of US$16, resulting in a loss on disposal of US$3. An impairment charge of
US$20 was recorded in the fourth quarter of 2005 as a result of the expected
divestiture.
Restructuring Activities
------------------------
On May 9, 2006, the Company announced the reorganization of its global
specialty aluminas business, entailing the gradual, yet permanent shut-down
of the Company's Specialty-Calcined Alumina plant ("UPCA") in Jonquiere,
Quebec, by year end. In relation to this activity, the Company recorded
restructuring charges of US$12 comprising US$1 of severance costs and US$11
of asset impairment charges during the second quarter of 2006.
On June 30, 2006, the Company announced that it had signed a new
collective labour agreement with its Quebec employees represented by the
Canadian Auto Workers (C.A.W.) union. The agreement applies to C.A.W.
employees at the Arvida, Beauharnois, Laterriere, Shawinigan and Vaudreuil
Works sites, as well as those at Power Operations, Port Facilities, Alma
Railway Operations and the Arvida Research and Development Centre. As part
of this agreement, the Company has offered early retirement incentives to
employees and has recorded severance charges of US$3 during the third quarter
of 2006 for employees who have accepted.
On July 12, 2006, the Company announced that it has begun
consultations with unions and employee representatives for a proposed sale
of selected assets at the Company's Affimet aluminum recycling plant in
Compiegne, France. In relation to this activity, the Company recorded
restructuring charges of US$44 comprising US$14 of severance costs, US$7 of
other costs and US$23 of asset impairment charges during the second quarter
of 2006.
Also on July 12, 2006, the Company announced that it has begun
consultations with unions and employee representatives for a proposed
closure of two U.K. sites. The proposed reorganization would result in the
closure of the Workington, U.K. hard alloy extrusion plant and the closure
of the Midsomer Norton, U.K. food flexibles packaging plant.
In relation to the Workington closure, the Company recorded
restructuring charges of US$9 comprised entirely of severance costs during
the second quarter of 2006. Production from Workington would be
consolidated at Alcan's facilities in Issoire and Montreuil-Juigné, France.
Workington is expected to cease production by the end of the second quarter
of 2007.
In relation to the Midsomer Norton closure, the Company recorded
restructuring charges of US$17 comprising US$16 of severance costs, and US$1
of asset impairment charges during the second quarter of 2006. The plant has
been adversely affected by a declining demand in the U.K. market and high
raw material costs. The site is expected to close by the end of 2006.
During the third quarter of 2006, the Company incurred charges of US$6
relating to early retirement incentives accepted by employees at a research
facility in France. These charges are included in severance costs.
During the third quarter of 2006, the Company incurred severance
charges of US$2 due to the restructuring of a trading operation in
Switzerland.
6. CONTINGENCIES
On January 19, 2006, the Company sold claims related to the Enron
bankruptcy to a financial institution for combined proceeds of US$62,
recorded in Other expenses (income) - net, resulting in an after-tax gain
of US$41.
7. SUBSEQUENT EVENTS
On October 3, 2006, Alcan announced that its Board of Directors has
authorized a share repurchase program of up to 5% of the Company's 376
million total common shares outstanding. This initiative follows Alcan's 33
% quarterly dividend increase from US$0.15 to US$0.20 per share announced on
August 2, 2006.
On October 19, 2006, the Company announced that it is in advanced
discussions with GrafTech International Ltd to acquire the remaining 70%
stake of Carbone Savoie and certain related technology and equipment for
approximately US$130 to US$140. Under the current structure, Alcan owns 30%
of Carbone Savoie, a global leader in the design and production of cathode
blocks. The proposed transaction will be submitted to the Works Council
consultation process in France and is expected to be completed in the
fourth quarter of 2006, following regulatory approval.
Montreal, Canada
31 October 2006
