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Alcan extends cash flow and earnings momentum to second quarter 2007
FINANCIAL HIGHLIGHTS
--------------------
- Income from continuing operations of $1.18 per common share compared to
$1.21 a year earlier and $1.60 in the first quarter;
- Operating earnings of $1.62 per common share compared to $1.48 a year
earlier and $1.67 in the first quarter;
- Cash flow from operating activities in continuing operations of
$738 million compared to $771 million a year earlier and $582 million
in the first quarter;
- Debt as a percentage of invested capital of 30% at the end of the
second quarter compared to 33% at the end of the first quarter.
MONTREAL, July 31 /PRNewswire-FirstCall/ - Alcan Inc. today reported
operating earnings of $1.62 per common share in the second quarter of 2007
compared to $1.48 a year ago and $1.67 in the first quarter.
"These are the second highest quarterly operating earnings in Alcan's
history, an achievement which reflects the ongoing commitment and focus of
our dedicated employees", said Dick Evans, President and CEO. "Our strong
performance in relation to operating earnings, cash flow generation and
debt reduction is particularly noteworthy given the headwinds faced
throughout the quarter from foreign exchange and energy costs. As we look
ahead to our combination with Rio Tinto, we will continue to focus on
execution and managing for value as well as aggressively building on our
excellent pipeline of growth projects," he continued.
"At the aluminum industry level, extremely strong Chinese demand growth
should underpin ongoing favourable conditions. We continue to expect our
financial results to reflect not only these favourable industry conditions,
but also Alcan's very strong competitive position," he concluded.
(x) Note: All amounts in this press release are expressed in US dollars
unless otherwise stated. This press release includes a number of
measures for which no meaning is prescribed by generally accepted
accounting principles (GAAP). Refer to the section "Definitions" for
an explanation of these measures.
-------------------------------------------------------------------------
First
Second Quarter Quarter
-----------------------------
($ millions, except where indicated) 2007 2006 2007
-------------------------------------------------------------------------
Operating earnings - excluding foreign
currency balance sheet translation and
Other Specified Items 603 556 618
Foreign currency balance sheet translation (193) (100) (19)
Other Specified Items (OSIs) 28 (2) (9)
-----------------------------
Income from continuing operations 438 454 590
Income from discontinued operations - 1 1
-----------------------------
Net income 438 455 591
-----------------------------
Basic earnings per common share
($ per common share)
Operating earnings 1.62 1.48 1.67
Income from continuing operations 1.18 1.21 1.60
Net income 1.18 1.21 1.60
Average number of common shares outstanding
(millions) 369.0 375.1 367.1
-------------------------------------------------------------------------
Operating Earnings
Operating earnings from continuing operations exclude foreign currency
balance sheet translation effects and Other Specified Items (OSIs).
Operating earnings of $603 million in the second quarter of 2007 were $47
million higher than in the comparable quarter a year ago. The improvement
mainly reflected higher aluminum realizations, better pricing and mix in
the Engineered Products and Bauxite & Alumina business segments, increased
volumes across most businesses, contribution from the cathode producer
Carbone Savoie and higher technology and smelter equipment sales. These
were partly offset by the negative impact of a weaker US dollar on
operating costs as well as increased energy, raw materials and operating
costs. Compared to the first quarter, operating earnings were down $15
million, mainly reflecting the negative impact of a weaker US dollar on
operating costs, higher alumina costs, lower market premia, lower
contribution from power generation, as well as higher share-based
compensation related to the increase in share price during the quarter.
These were partially offset by higher aluminum volumes, improved pricing
and product mix mainly in Bauxite & Alumina, higher aluminum prices and
technology and smelter equipment sales.
Included in operating earnings for the second quarter of 2007 were
non-cash mark-to-market charges on derivatives of $0.02 per common share
compared to gains of $0.03 a year earlier and charges of $0.02 in the first
quarter.
Income from Continuing Operations
Income from continuing operations was $438 million or $1.18 per common
share for the second quarter of 2007 versus income of $454 million or $1.21
a year earlier and income of $590 million or $1.60 in the first quarter.
Included in income from continuing operations for the second quarter of
2007 was a primarily non-cash, after-tax loss of $193 million or $0.52 per
common share for the effects of foreign currency balance sheet translation,
compared to an after-tax loss of $100 million or $0.27 in the year-ago
quarter and an after-tax loss of $19 million or $0.05 in the first quarter.
The foreign currency balance sheet translation losses in the second quarter
of 2007 were largely due to the strengthening of the Canadian dollar versus
the US dollar, which went from 86 cents at the end of the first quarter to
94 cents at the end of the second quarter.
Also included in income from continuing operations for the second
quarter of 2007 were after-tax gains of $28 million or $0.08 per common
share for OSIs. The most significant items included in OSIs were favourable
tax adjustments of $150 million mainly related to the recognition of future
tax benefits in France, partially offset by losses on disposals of assets,
businesses and investments of $30 million primarily in connection with the
sale of the Company's Vlissingen smelter in the Netherlands, charges of $14
million principally related to previously announced restructuring in
respect of packaging businesses as well as other charges of $66 million
mainly comprising share-based compensation of $27 million resulting from
the appreciation in the share price subsequent to the May 7, 2007 offer
from Alcoa, correction of a net working capital overstatement (non-cash) of
$18 million in the Packaging business, and advisory and legal fees of $14
million related to the Company's efforts following the May 7, 2007 Alcoa
offer to develop a full set of highest value alternatives consistent with
the best interests of Alcan shareholders.
Net Income
Including OSIs and foreign currency balance sheet translation, net
income was $438 million or $1.18 per common share for the second quarter of
2007.
Sales and Operating Revenues
-------------------------------------------------------------------------
First
Second Quarter Quarter
-----------------------------
($ millions, except where indicated) 2007 2006 2007
-------------------------------------------------------------------------
Sales and operating revenues ($M) 6,605 6,103 6,420
-------------------------------------------------------------------------
Shipment volumes (kt)
Ingot products(x) 760 765 744
Aluminum used in engineered products &
packaging 342 341 342
-----------------------------
Total aluminum volume 1,102 1,106 1,086
-------------------------------------------------------------------------
Aluminum pricing data ($ per tonne)
Ingot product realizations(x) 2,866 2,709 2,835
Average LME 3-month price (one-month lag) 2,808 2,661 2,760
-------------------------------------------------------------------------
(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 $6,605 million were up $502 million
compared to the year-ago quarter mainly reflecting higher aluminum prices
as well as favourable pricing, product mix and volumes across most
businesses. Compared to the first quarter, sales and operating revenues
increased by $185 million mainly as a result of higher aluminum volumes,
improved pricing and product mix across most businesses, higher aluminum
prices and technology and smelter equipment fees, partially offset by lower
market premia and contribution from power generation.
The average realized price on sales of ingot products during the second
quarter was up $157 per tonne from the year-ago quarter and up $31 per
tonne from the first quarter. The increases over both the year-ago and
sequential quarters mainly reflected the impact of higher LME aluminum
prices offset by lower market premia.
Cash Flow and Debt
-------------------------------------------------------------------------
First
Second Quarter Quarter
-----------------------------
($ millions, except where indicated) 2007 2006 2007
-------------------------------------------------------------------------
Cash flow from operating activities in
continuing operations 738 771 582
Dividends (73) (58) (75)
Capital expenditures (421) (469) (312)
-----------------------------
Free cash flow from continuing operations 244 244 195
-------------------------------------------------------------------------
Cash flow from operating activities in continuing operations at $738
million decreased by $33 million compared to the year-ago quarter and
increased by $156 million compared to the first quarter. The increase over
the prior quarter principally reflects seasonally typical favourable
movements in payables and deferred items which more than offset lower net
income. Debt as a percentage of invested capital as at June 30, 2007 was
30%, down from 33% at the end of the first quarter due to lower debt and
higher equity.
REVIEW OF BUSINESS GROUP PROFIT AND CORPORATE ITEMS
---------------------------------------------------
-------------------------------------------------------------------------
First
Second Quarter Quarter
-----------------------------
($ millions) 2007 2006 2007
-------------------------------------------------------------------------
Business Group Profit (BGP)
Bauxite and Alumina 204 126 175
Primary Metal 744 774 844
Engineered Products 149 144 174
Packaging 126 134 140
-----------------------------
Subtotal 1,223 1,178 1,333
-----------------------------
Equity accounted joint venture
eliminations (75) (86) (47)
Change in fair market value of derivatives (7) 7 (15)
-----------------------------
1,141 1,099 1,271
Corporate Items
Intersegment, corporate offices and other (229) (159) (89)
Depreciation & amortization (269) (258) (264)
Interest (61) (69) (60)
Income taxes (166) (195) (280)
Equity income 24 37 12
Minority interests (2) (1) -
-----------------------------
Income from continuing operations 438 454 590
-------------------------------------------------------------------------
Bauxite and Alumina: BGP for the second quarter was a record $204
million, an increase of $78 million compared to the year-ago quarter.
Excluding OSIs and foreign currency balance sheet translation effects, the
year-over-year increase in BGP was $86 million or 60%. This improvement
mainly reflected higher LME-linked contract prices for alumina (given the
normal one-quarter lag), higher technology-related profits as well as
improved sales mix, partially offset by exchange losses due to the
strengthening Australian and Canadian dollars, higher raw material costs
and the residual impact from the national strike in Guinea during the first
quarter of 2007. On a sequential basis, BGP for the group was $29 million
above the previous quarter. Excluding OSIs and foreign currency balance
sheet translation effects, BGP increased by $50 million or 28%, reflecting
a favorable change in sales mix, lower operating costs, lower adverse
impact from the Guinean national strike during the first quarter of 2007
and higher volumes, partially offset by higher raw material costs and
exchange losses due to the strengthening Australian and Canadian dollars.
To date, the total impact of the national strike in Guinea during the first
quarter across B&A was $36 million, of which $15 million impacted in the
second quarter. Results for the third quarter of 2007 are expected to be
slightly higher than the second quarter as a result of higher shipments
(partly related to Gove expansion capacity beginning to come on-stream) and
higher bauxite profits.
Primary Metal: BGP for the second quarter was $744 million, a decrease
of $30 million as compared to the year-ago quarter. Excluding OSIs and
foreign currency balance sheet translation effects, the year-over-year
decrease in BGP was $26 million or 3%. The decline mainly reflected higher
input costs (alumina, electricity and carbon-related raw material costs),
the adverse effect of the weaker US dollar, higher operating costs, as well
as lower market premia, partially offset by higher LME metal prices,
volumes and contribution from the cathode producer Carbone Savoie. On a
sequential quarter basis, BGP decreased by $100 million. Excluding OSIs and
foreign currency balance sheet translation effects, BGP decreased by $76
million or 9%, reflecting higher input costs (alumina, electricity and
carbon-related raw material costs), the adverse effect of the weaker US
dollar, lower contributions from power generation and lower market premia.
These unfavorable impacts were partially offset by higher volumes, higher
LME and higher contribution from technology and smelter equipment sales. As
a result of lost contribution from the divestiture of the Vlissingen
smelter in the Netherlands, and assuming current forward prices for
aluminum and forward exchange rates, results for the third quarter are
expected to be somewhat lower than the second quarter.
Engineered Products: BGP for the second quarter was $149 million.
Excluding OSIs and foreign currency balance sheet translation effects,
operating results were $162 million, or $7 million higher than a year
earlier. Results for the second quarter of 2006 included significant metal
timing benefits; a consequence of the rapid rise in LME prices in earlier
quarters. Adjusting for these non-cash accounting benefits, the operating
performance of the group improved by approximately 20 percent year over
year on the back of strong results from the Cable, Composites and Aerospace
businesses. On a sequential quarter basis, BGP was $25 million lower than
in the first quarter of the year. Excluding OSIs and foreign currency
balance sheet translation effects, operating results were $16 million lower
principally due to the absence of beneficial metal timing effects.
Adjusting for these non-cash accounting benefits, the performance of the
group was equivalent to the record level of the first quarter, a reflection
of the generally firm business conditions evident through the first half of
the year. Operating results for the third quarter are expected to be lower
due to the usual summer holiday closures in Europe.
Packaging: BGP in the second quarter of $126 million was down $8
million or 6% from the prior-year quarter. Excluding the impact of OSIs,
foreign currency balance sheet translation effects and lost contributions
from divested businesses, BGP was $165 million, an improvement of $12
million or 8%. The year-on-year improvement was mainly due to operational
savings and restructuring measures, a stronger euro compared to the US
dollar and volume growth initiatives. On a sequential quarter basis, BGP
decreased by $14 million or 10%. Excluding the impact of OSIs and foreign
currency balance sheet translation effects, BGP increased by $20 million or
14% as a result of stronger volumes and cost saving measures. Operating BGP
in the third quarter of 2007 is expected to be similar as normal seasonal
volume softening is offset by ongoing progress in growth and operational
efficiencies.
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 and alumina. The
increase of $70 million compared to the second quarter of 2006 as well as
the increase of $140 million over the prior quarter mainly reflect higher
share-based compensation, the loss on the sale of the Company's Vlissingen
smelter in the Netherlands and advisory and legal fees resulting from the
Company's efforts during the quarter to develop a full set of highest value
alternatives consistent with the best interests of Alcan shareholders
following the May 7, 2007 Alcoa offer.
Depreciation and amortization expenses were $11 million higher than in
the year-ago quarter primarily reflecting increased depreciation at the
Gove alumina refinery in Australia. Depreciation and amortization expenses
were comparable to the prior quarter.
Interest expense, net of capitalized interest, was $8 million lower
than in the year-ago quarter and comparable to the prior quarter. The
year-over-year decline mainly reflected a higher level of capitalized
interest and reduced debt levels. In the second quarter of 2007,
capitalized interest was $24 million compared to $20 million a year ago and
$23 million in the first quarter, all largely related to the Gove
expansion.
The Company's effective tax rate on income from continuing operations
was 29% in the second quarter and 31% year to date. Foreign currency
balance sheet translation losses due to the strengthening of the Canadian
dollar increased the effective tax rate in the second quarter, largely
offset by the recognition of future tax benefits in France which were not
previously recognized. These tax benefits, which are included in OSIs, were
recognized in the second quarter when their realization met the relevant
tests for likelihood of recovery.
OUTLOOK
-------
For 2007, world primary aluminum consumption is forecast to increase by
approximately 10.1% (6.9% in 2006) driven by exceptionally high demand in
China and representing the fastest rate of global consumption increase
since at least 1980. Production from new capacity and restarts is expected
to increase world supply by about 11.2% (6.4% in 2006). As a consequence
the company expects the market to generate a modest surplus in 2007 of
approximately 200 kt, versus a deficit of 162 kt in 2006.
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 $ /
Increase in millions common
rate / price of $ share
-------------------------------------------------------------------------
Economic impact of changes in
period-average exchange rates
European currencies $0.10 (50) (0.14)
Canadian dollar $0.10 (150) (0.42)
Australian dollar $0.10 (70) (0.19)
-------------------------------------------------------------------------
Balance sheet translation impact of
changes in period-end exchange rates
Canadian dollar $0.10 (230) (0.63)
Australian dollar $0.10 (25) (0.07)
-------------------------------------------------------------------------
Economic impact of changes in
period-average LME prices(x)
Aluminum $100/t 190 0.51
-------------------------------------------------------------------------
(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," "would," "estimates," "plans," "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;
cyclical demand and pricing within the principal markets for the company's
products; changes in the relative value of various currencies; fluctuations
in the supply of and prices for power in the areas in which the company
maintains production facilities; changes in aluminum ingot prices and
changes in raw material costs and availability; competition in highly
competitive markets; changes in prevailing interest rates and equity market
returns related to pension plan investments; economic, regulatory and
political factors within the countries in which the company operates or
sells its products; the risk of significant losses from trading operations,
including losses due to market and credit risks associated with
derivatives; changes in government regulations, particularly those
affecting environmental, health or safety compliance; risks related to the
use of hazardous materials in manufacturing processes; delay and cost risks
related to significant capital projects; the consequences of transferring
most of the aluminum rolled products businesses operated by the company to
Novelis Inc.; relationships with, and financial and operating conditions
of, customers and suppliers; willingness of customers to accept
substitution by competing products; major changes in technology that affect
the company's competitiveness; 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; the effect of integrating acquired businesses
and the ability to attain expected benefits; potential discovery of
unanticipated commitments or other liabilities associated with the
acquisition and integration or disposition of businesses; 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
-----------
"$" all amounts are in US dollars.
"Business Group Profit" (BGP) comprises earnings before interest,
income taxes, minority interests, depreciation and amortization and
excludes certain items, such as corporate costs, restructuring costs
(relating to major corporate-wide acquisitions or initiatives), impairment
and other special charges, pension actuarial gains, losses and other
adjustments, and unrealized gains and losses on derivatives, 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 unrealized 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 US 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 US 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" (Operating earnings) is
presented in addition to income from continuing operations and reported net
income. Operating earnings are not calculated in accordance with US 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, July 31, 2007 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 websites: www.sec.gov (US) and www.sedar.com (Canada) websites.
ALCAN INC.
----------
Alcan Inc. (NYSE, TSX: AL) is a leading global materials company,
delivering high quality products, engineered solutions 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 68,000 employees, including its
joint ventures, in 61 countries and regions, posted revenues of US$23.6
billion in 2006. The Company has featured on the Dow Jones Sustainability
World Index. For more information, please visit: www.alcan.com.
ALCAN INC.
----------
INTERIM CONSOLIDATED STATEMENT OF INCOME (unaudited)
-------------------------------------------------------------------------
Second Quarter Six Months
--------------------------------------
Periods ended June 30 2007 2006 2007 2006
--------------------------------------
--------------------------------------
(in millions of US$, except per
share amounts)
Sales and operating revenues 6,605 6,103 13,025 11,653
Costs and expenses
Cost of sales and operating
expenses, excluding depreciation
and amortization noted below 4,998 4,646 9,799 8,774
Depreciation and amortization 269 258 533 509
Selling, administrative and general
expenses 453 366 827 730
Research and development expenses 61 55 115 107
Interest 61 69 121 145
Restructuring charges - net 26 94 38 108
Other expenses (income) - net 155 2 152 (29)
--------------------------------------
6,023 5,490 11,585 10,344
--------------------------------------
Income from continuing operations
before income taxes and other
items 582 613 1,440 1,309
Income taxes 166 195 446 464
--------------------------------------
Income from continuing operations
before other items 416 418 994 845
Equity income 24 37 36 65
Minority interests (2) (1) (2) (2)
--------------------------------------
Income from continuing operations 438 454 1,028 908
Income from discontinued operations - 1 1 4
--------------------------------------
Income before cumulative effect of
accounting change 438 455 1,029 912
Cumulative effect of accounting
change, net of income taxes of
$2 in 2006 - - - (4)
--------------------------------------
Net income 438 455 1,029 908
Dividends on preference shares 3 3 6 5
--------------------------------------
Net income attributable to common
shareholders 435 452 1,023 903
--------------------------------------
--------------------------------------
Earnings per share
Basic:
Income from continuing operations 1.18 1.21 2.78 2.42
Income from discontinued operations - - - 0.01
Cumulative effect of accounting
change - - - (0.01)
--------------------------------------
Net income per common share - basic 1.18 1.21 2.78 2.42
--------------------------------------
--------------------------------------
Diluted:
Income from continuing operations 1.17 1.20 2.77 2.41
Income from discontinued operations - - - 0.01
Cumulative effect of accounting
change - - - (0.01)
--------------------------------------
Net income per common share -
diluted 1.17 1.20 2.77 2.41
--------------------------------------
--------------------------------------
Dividends per common share 0.20 0.15 0.40 0.30
--------------------------------------
--------------------------------------
ALCAN INC.
----------
INTERIM CONSOLIDATED BALANCE SHEET (unaudited)
-------------------------------------------------------------------------
June December
30, 2007 31, 2006
---------------------
---------------------
(in millions of US$)
ASSETS
------
Current assets
Cash and time deposits 198 229
Trade receivables (net of allowances of $65 in 2007
and $58 in 2006) 3,254 2,910
Other receivables and deferred charges 1,242 1,195
Deferred income taxes 132 152
Inventories 3,258 3,186
Current assets held for sale 4 5
---------------------
Total current assets 8,088 7,677
---------------------
Deferred charges and other assets 1,001 1,087
Investments 1,404 1,509
Deferred income taxes 1,285 989
Property, plant and equipment
Cost (excluding construction work in progress) 19,106 18,698
Construction work in progress 2,706 2,294
Accumulated depreciation (9,031) (8,592)
---------------------
12,781 12,400
---------------------
Intangible assets, net of accumulated amortization
of $399 in 2007 and $346 in 2006 628 676
Goodwill 4,387 4,599
Long-term assets held for sale 1 2
---------------------
Total assets 29,575 28,939
---------------------
---------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities
Payables and accrued liabilities 5,466 5,430
Short-term borrowings 704 467
Debt maturing within one year 69 36
Deferred income taxes 49 46
---------------------
Total current liabilities 6,288 5,979
---------------------
Debt not maturing within one year 4,578 5,476
Deferred credits and other liabilities 1,703 1,787
Post-retirement benefits 3,330 3,381
Deferred income taxes 1,219 1,151
Minority interests 74 71
Shareholders' equity
Redeemable non-retractable preference shares 160 160
Common shareholders' equity
Common shares 6,453 6,235
Additional paid-in capital 634 672
Retained earnings 5,132 4,281
Common shares held by a subsidiary (31) (31)
Accumulated other comprehensive income (loss) 35 (223)
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12,223 10,934
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12,383 11,094
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Total liabilities and shareholders' equity 29,575 28,939
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ALCAN INC.
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INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
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Second Quarter Six Months
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Periods ended June 30 2007 2006 2007 2006
--------------------------------------
--------------------------------------
(in millions of US$)
OPERATING ACTIVITIES
Net income 438 455 1,029 908
Cumulative effect of accounting
change - - - 4
Income from discontinued operations - (1) (1) (4)
--------------------------------------
Income from continuing operations 438 454 1,028 908
Adjustments to determine cash from
operating activities:
Depreciation and amortization 269 258 533 509
Deferred income taxes (26) 83 41 227
Equity loss (income), net of
dividends 43 (2) 51 (18)
Asset impairment charges 18 36 19 45
Loss (Gain) on disposal of
businesses and investments - net 50 (4) 46 (4)
Stock option expense 9 11 11 36
Change in operating working
capital
Change in receivables (225) (217) (390) (756)
Change in inventories (38) (31) (65) (109)
Change in payables and accrued
liabilities 82 110 (59) 130
Change in deferred charges and
other assets, deferred credits
and other liabilities, and
post-retirement benefits - net 118 75 111 167
Other - net - (2) (6) (2)
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Cash from operating activities in
continuing operations 738 771 1,320 1,133
Cash from operating activities in
discontinued operations - 8 - 8
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Cash from operating activities 738 779 1,320 1,141
FINANCING ACTIVITIES
Proceeds from issuance of new
debt - net of issuance costs 9 354 22 371
Debt repayments (416) (770) (760) (836)
Short-term borrowings - net (6) 36 102 -
Common shares issued 138 81 166 147
Dividends - Alcan shareholders
(including preference) (72) (58) (147) (115)
- Minority interests (1) - (1) (1)
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Cash used for financing activities (348) (357) (618) (434)
INVESTMENT ACTIVITIES
Purchase of property, plant and
equipment (421) (469) (733) (895)
Business acquisitions and purchase
of investments, net of cash and
time deposits acquired (12) (2) (14) (40)
Net proceeds from disposal of
businesses, investments and other
assets 50 9 57 207
Other 2 12 (47) 12
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Cash used for investment activities
in continuing operations (381) (450) (737) (716)
Cash from investment activities in
discontinued operations - 5 - 5
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Cash used for investment activities (381) (445) (737) (711)
Effect of exchange rate changes on
cash and time deposits 3 2 4 5
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Increase (Decrease) in cash and
time deposits 12 (21) (31) 1
Cash and time deposits - beginning
of period 186 203 229 181
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Cash and time deposits - end of
period 198 182 198 182
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ALCAN INC.
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(in millions of US$, except per share amounts)
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 consolidated financial
statements as contained in the most recent Annual Report on Form 10-K (Form
10-K), except for the new accounting policy that has been adopted effective
January 1, 2007. The 2006 year-end balance sheet data was derived from
audited annual consolidated financial statements, but does not include all
disclosures required by accounting principles generally accepted in the
United States of America (US GAAP). 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 US GAAP and therefore should be read in
conjunction with the Company's most recent Form 10-K.
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 US 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. ACCOUNTING CHANGES
FIN 48 - Accounting for Uncertainty in Income Taxes
---------------------------------------------------
On January 1, 2007, the Company adopted the provisions of the Financial
Accounting Standards Board (FASB) Interpretation # 48, Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement # 109
(FIN 48). Under FIN 48, the Company may recognize the tax benefit from a
tax position only if it is more likely than not that the tax position will
be sustained on examination by the taxing authorities, based on the
technical merits of the position. The tax benefits recognized in the
financial statements from such a position should be measured based on the
largest benefit that has a greater than fifty percent likelihood of being
realized upon settlement. FIN 48 also provides guidance on derecognition,
classification, interest and penalties on income taxes, accounting in
interim periods and expanded income tax disclosures.
On January 1, 2007, the Company recorded a $28 net increase in the
liability for unrecognized tax benefits. This net increase in liabilities
resulted in a decrease to the January 1, 2007 balance of Retained earnings
of $21, a net decrease in Deferred tax liabilities of $8 and a reduction of
$1 in equity-accounted investments included in Deferred charges and other
assets.
3. CAPITALIZATION OF INTEREST COSTS
Total interest costs in continuing operations in the second quarter and
six months ended June 30, 2007 were $85 and $168 respectively (2006: $89
and $179), of which $24 and $47, respectively (2006: $20 and $34), were
capitalized.
4. SALES AND ACQUISITIONS OF BUSINESSES AND INVESTMENTS
Investment
----------
On April 30, 2007, the Company signed a Heads of Agreement with Saudi
Arabian mining company Ma'aden to develop a proposed US$7-billion
integrated aluminum "mine-to-metal" project. The Company would hold a 49%
stake in the project and recorded an initial investment of $18 in the
second quarter of 2007.
Sales
-----
On April 27, 2007, the Company concluded the sale of selected assets at
the Company's Affimet aluminum recycling plant in Compiegne (France). In
relation to this, the Company received proceeds of $26 and recorded a loss
on disposal of $12 in the second quarter of 2007.
On May 31, 2007, the Company reached an agreement in principle with
UK-based Klesch & Company Limited (Klesch) regarding the sale of its
Vlissingen smelter in the Netherlands. Alcan had an 85% interest in the
smelter. The Company recorded charges of $42 included as a loss on disposal
of businesses and investments within Other expenses (income) - net in the
second quarter of 2007. The sale was concluded on July 2, 2007, for net
proceeds of $29.
On June 26, 2007, the Company concluded the sale of its Satma
subsidiary to ALMECO Spa for net proceeds of $4 and the Company recorded a
loss on disposal of $1 in the second quarter and $2 in the six months ended
June 30, 2007. Located in Goncelin (France), Satma manufactures and sells
capacitor foil for the electronic industry as well as anodized strip for
the lighting and decoration markets.
5. SUBSEQUENT EVENTS
On July 12, 2007, Alcan entered into a support agreement with Rio Tinto
plc (Rio Tinto) and Rio Tinto Canada Holding Inc. (Rio Tinto Canada), a
wholly-owned indirect subsidiary of Rio Tinto. Pursuant to the support
agreement, Rio Tinto Canada has agreed to make a cash tender offer to
acquire all of Alcan's outstanding common shares for $101 per common share.
The board of directors of Alcan has unanimously recommended that Alcan
shareholders should accept the offer. The offer is subject to a number of
conditions including valid acceptances of not less than 66 ? percent of
Alcan shares on a fully diluted basis and the approval of Rio Tinto
shareholders. The board of directors of Rio Tinto has approved and will
recommend the transaction to its shareholders. The offer will also be
subject to certain customary conditions including receipt of necessary
regulatory and antitrust approvals, including in the United States, Canada,
the European Union and Australia, and the absence of material adverse
changes or effects. The offer is expected to close in the fourth quarter of
2007.
Subject to the terms and conditions of the support agreement, Alcan's
board of directors has the right to withdraw, modify or change its support
of the offer if Alcan receives a superior proposal (as defined in the
support agreement) prior to the expiration of the offer. However, Rio Tinto
Canada has the right to match any such superior proposal received by Alcan
and, in certain circumstances, if the offer is not consummated, Rio Tinto
Canada would have the right to receive a payment of $1,049 from Alcan. In
other circumstances, related to the required shareholder votes for the Rio
Tinto group, an equivalent payment from Rio Tinto may be required.
The Company concurrently announced that Rio Tinto and Alcan had agreed
to divest Alcan's packaging business. The Company is currently evaluating
its strategies for the planned divestiture.
On July 18, 2007 the Company announced it had reached an agreement with
Hindalco Industries Limited, India for the sale of its 45% interest in
Utkal Alumina International Limited (Utkal). The Company had announced its
intention to sell its interest in Utkal on April 12, 2007. The Company
expects completion of the sale during the third quarter of 2007.
On July 26, 2007 the Company's board of directors approved the
redemption of its redeemable non-retractable preference shares at a price
of CAN$25.00 per share. The transaction is expected to be completed on
September 3, 2007.
Montreal, Canada
31 July 2007
%B M %C 1,8 %D Second Quarter Results
SOURCE ALCAN - EN