FINANCIAL HIGHLIGHTS
- Income from continuing operations of $1.21 per common share compared
to $0.56 a year earlier and $1.21 in the first quarter;
- Record operating earnings of $1.48 per common share compared to $0.77
a year earlier and $1.26 in the first quarter;
- Cash from operating activities in continuing operations of
$771 million compared to $189 million a year earlier and $362 million
in the first quarter;
- Debt as a percentage of invested capital of 35% at the end of the
second quarter compared to 38% at the end of the first quarter;
- Quarterly dividend to increase by 33% from $0.15 to $0.20.
MONTREAL, Aug. 2 /PRNewswire-FirstCall/ - Alcan Inc. (NYSE, TSX: AL)
today reported record operating earnings of $1.48 per common share in the
second quarter compared to $0.77 a year ago and $1.26 in the first quarter
of 2006.
In addition, the Company announced a 33% increase in the quarterly
dividend from $0.15 to $0.20. The dividend of $0.20 per common share is
payable on September 20, 2006 to shareholders of record at the close of
business on August 18, 2006.
"This performance reflects not only strong market conditions but also
Alcan's disciplined focus on operational excellence through implementation
of Alcan's Integrated Management System (AIMS)," said Dick Evans, President
and CEO. "We are making excellent progress toward our key financial
objectives and have reached our long-term debt to capital target of 35%
sooner than expected," he added.
Commenting on the dividend increase, he said "I am particularly pleased
that Alcan's strong financial performance is allowing us to reward
shareholders while enhancing our ability to act on attractive growth
opportunities as they arise. Alcan has developed an excellent pipeline of
organic growth projects and we have ample funding capacity to pursue them."
(x) Note: All amounts in this press release are expressed in U.S. dollars
unless otherwise stated. This press release includes a number of measures
for which no meaning is prescribed by generally accepted accounting
principles (GAAP). Refer to the section "Definitions" for an explanation
of these measures.
<<
-------------------------------------------------------------------------
Six Months
First Ended
Second Quarter Quarter June 30
---------------------------------------
($ millions, except
where indicated) 2006 2005 2006 2006 2005
-------------------------------------------------------------------------
Operating earnings - excluding
foreign currency balance sheet
translation and Other
Specified Items 556 286 473 1,029 509
Foreign currency balance
sheet translation (100) 4 (9) (109) 34
Other Specified Items (OSIs) (2) (82) (10) (12) (127)
---------------------------------------
Income from continuing operations 454 208 454 908 416
Income (Loss) from
discontinued operations 1 (17) 3 4 (7)
Cumulative effect of
accounting change - - (4) (4) -
---------------------------------------
Net income 455 191 453 908 409
---------------------------------------
Basic earnings per common share
($ per common share)
Operating earnings 1.48 0.77 1.26 2.74 1.36
Income from continuing operations 1.21 0.56 1.21 2.42 1.11
Net income 1.21 0.52 1.21 2.42 1.09
Average number of common
shares outstanding (millions) 375.1 370.2 373.1 374.1 370.1
-------------------------------------------------------------------------
Operating Earnings
Operating earnings from continuing operations exclude foreign currency
balance sheet translation effects and Other Specified Items (OSIs).
Operating earnings of $556 million in the second quarter of 2006 were $270
million higher than in the comparable quarter a year ago. The improvement
mainly reflected higher aluminum prices, better pricing and mix, and
improved volumes, partially offset by higher costs for energy and raw
materials as well as the negative impact of a stronger Canadian dollar.
Compared to the first quarter of 2006, operating earnings were up $83
million. The improvement mainly reflected the benefit of higher aluminum
prices, improved volumes, and better pricing and mix, partially offset by
lower contributions from technology sales and power generation as well as
the negative impact of a stronger Canadian dollar and higher raw material
costs.
Included in operating earnings for the second quarter of 2006 were
mark- to-market gains on derivatives of $0.03 per common share as compared
to $0.06 a year earlier and $0.03 in the first quarter of 2006.
Net Income
Including OSIs, foreign currency balance sheet translation, and
discontinued operations, net income was $455 million or $1.21 per common
share for the second quarter.
Foreign currency balance sheet translation charges of $100 million for
the second quarter reflect the largely non-cash impact of the strengthening
Canadian dollar on the Company's deferred income taxes.
The most significant items included in OSIs in the second quarter of
2006 were after-tax charges totaling $66 million associated mainly with
previously announced restructuring initiatives across all business groups,
largely offset by favourable tax adjustments of $63 million mainly related
to a deferred tax benefit arising from a reduction in the Canadian Federal
tax rates enacted in June 2006.
Sales and Operating Revenues
-------------------------------------------------------------------------
Six Months
First Ended
Second Quarter Quarter June 30
---------------------------------------
($ millions, unless
otherwise noted) 2006 2005 2006 2006 2005
-------------------------------------------------------------------------
Sales & operating revenues ($M) 6,103 5,206 5,550 11,653 10,384
Volumes (Kt)
Ingot products (x) 765 744 749 1,514 1,468
Aluminum used in engineered
products & packaging 341 336 337 678 663
---------------------------------------
Total aluminum volume 1,106 1,080 1,086 2,192 2,131
Aluminum pricing data
($ per tonne)
Ingot product realizations (x) 2,709 2,034 2,454 2,581 2,046
Average LME 3-month price
(1-month lag) (xx) 2,661 1,868 2,369 2,515 1,859
-------------------------------------------------------------------------
(x) Includes primary and secondary ingot and scrap aluminum. Realized
prices generally lag LME price changes by one month.
(xx) 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 $6,103 million were up $897 million
compared to the year-ago quarter mainly reflecting higher aluminum prices,
favourable pricing and mix across all businesses as well as increased
volume in the Primary Metal and Engineered Products groups. Compared to the
first quarter of 2006, sales and operating revenues rose by $553 million
primarily reflecting the benefits of higher aluminum prices and ingot
volumes as well as improved sales mix and pricing in the downstream
businesses.
Total aluminum volume was up slightly from a year earlier principally
due to additional production from the Alouette expansion and the Becancour
smelter restart which more than offset the impact of the closure of the
Steg smelter in Switzerland. The marginal aluminum volume increase from the
first quarter was largely the result of inventory drawdowns during the
second quarter in the Company's Asia-Pacific smelter system.
The average realized price on sales of ingot products during the second
quarter was up $675 per tonne from the year-ago quarter and $255 per tonne
from the first quarter of 2006. Both the year-over-year and sequential
quarter increases reflected the impact of higher LME prices, partly offset
by lower local market premia compared to the second quarter a year ago.
Cash Flow and Debt
-------------------------------------------------------------------------
Six Months
First Ended
Second Quarter Quarter June 30
---------------------------------------
($ millions, except
where indicated) 2006 2005 2006 2006 2005
-------------------------------------------------------------------------
Cash flow from operating activities
in continuing operations 771 189 362 1,133 92
Dividends (59) (58) (59) (118) (116)
Capital expenditures (469) (441) (426) (895) (698)
---------------------------------------
Free cash flow from
continuing operations 243 (310) (123) 120 (722)
-------------------------------------------------------------------------
Cash flow from operating activities in continuing operations increased
by $582 million compared to the year-ago quarter. The increase mainly
reflected higher earnings and a favourable change in working capital
largely attributable to higher payables. Compared to the first quarter of
2006, cash flow from operating activities was up by $409 million as a
result of a favourable change in working capital. Debt as a percentage of
invested capital as at June 30, 2006 was at 35%, down from 38% at the end
of the first quarter.
REVIEW OF BUSINESS GROUP PROFIT AND CORPORATE ITEMS
---------------------------------------------------
-------------------------------------------------------------------------
Six Months
First Ended
Second Quarter Quarter June 30
---------------------------------------
($ millions) 2006 2005 2006 2006 2005
-------------------------------------------------------------------------
Business Group Profit (BGP)
Bauxite and Alumina 126 111 129 255 208
Primary Metal 774 425 758 1,532 856
Engineered Products 144 101 154 298 216
Packaging 134 177 146 280 333
---------------------------------------
Subtotal 1,178 814 1,187 2,365 1,613
---------------------------------------
Equity accounted joint
venture eliminations (86) (77) (71) (157) (151)
Change in fair market
value of derivatives 7 33 14 21 30
---------------------------------------
1,099 770 1,130 2,229 1,492
Corporate Items
Intersegment, corporate
offices and other (159) (161) (107) (266) (248)
Depreciation & amortization (258) (268) (251) (509) (540)
Interest (69) (90) (76) (145) (175)
Income taxes (195) (70) (269) (464) (168)
Equity income 37 28 28 65 57
Minority interests (1) (1) (1) (2) (2)
---------------------------------------
Income from continuing operations 454 208 454 908 416
-------------------------------------------------------------------------
Business Group Profit (BGP)
Bauxite and Alumina: BGP for the second quarter was $126 million, an
increase of $15 million or 14% compared to the year-ago quarter. Excluding
OSIs and balance sheet translation effects, the year-over-year increase in
BGP was $37 million or 35%. This improvement mainly reflected higher
LME-linked contract prices for alumina and a favourable change in sales
mix, partly offset by higher costs for energy, caustic soda as well as
accelerated maintenance and other operating costs mainly related to Gove.
On a sequential quarter basis, BGP was slightly below the previous quarter.
Excluding OSIs and balance sheet translation effects, BGP increased by $15
million or 12% reflecting higher contract prices which more than offset
unfavourable changes in sales mix. For the third quarter of 2006, results
are expected to show good improvement over the second quarter mainly due to
higher LME-linked contract prices.
Primary Metal: BGP for the second quarter at $774 million increased by
$349 million or 82% compared to the year-ago quarter. Excluding OSIs and
balance sheet translation effects, the year-over-year increase in BGP was
$379 million or 90%. The improvement reflected higher sales price
realizations, partially offset by the impact of a weaker U.S. dollar and
higher input costs due mainly to alumina and fuel-related raw materials. On
a sequential quarter basis, BGP was up $16 million or 2%. Excluding OSIs
and balance sheet translation effects, BGP increased by $40 million or 5%.
The improvement mainly reflected higher sales price realizations and
increased metal shipments, partially offset by significantly lower
contributions from technology sales and power generation, the unfavourable
impact of a weaker U.S. dollar as well as higher input costs due mainly to
energy and fuel- related raw materials. For the third quarter of 2006,
results are expected to decline due to lower aluminum prices, higher
alumina costs as well as the impact of the power interruption at the
Rekjavik smelter in Iceland.
Engineered Products: BGP for the second quarter was $144 million, up
$43 million or 43% from the comparable quarter of 2005. Excluding the
impact of OSIs and foreign currency balance sheet translation effects, the
year-over- year increase in BGP was $23 million or 17%, mainly reflecting
strong demand for cable, composite and aerospace products. On a sequential
quarter basis, BGP was down $10 million or 6%. Excluding OSIs and
translation effects, BGP was little changed from the first quarter. The BGP
margin for the second quarter, adjusted for OSIs and translation effects,
was 8.1%, compared to 8.0% a year earlier and 9.1% in the first quarter
reflecting higher underlying aluminum prices and reduced metal timing
benefits. BGP for the third quarter is expected to be below the second
quarter due to normal seasonal slowing in Europe combined with the timing
impact relating to the reversal of earlier metal inventory valuation
benefits.
Packaging: BGP in the second quarter of $134 million was down $43
million or 24% compared to the prior-year quarter. Excluding the impact of
OSIs and foreign currency balance sheet translation effects, BGP decreased
by $17 million or 10%, reflecting the loss of contributions from divested
businesses and a timing lag in the pass-through of raw material cost
increases, which together more than offset increased volumes in the Food
and Tobacco businesses. On a sequential quarter basis, BGP was down $12
million or 8%. However, excluding OSIs and translation effects, BGP
increased $11 million or 7% reflecting improvements across all businesses
including seasonal growth and the benefits of earlier raw material price
pass-through actions, partially offset by the adverse impact of divested
businesses. The BGP margin for the second quarter, adjusted for OSIs and
translation effects, was 10.5%, down from 11.2% a year earlier but up from
9.9% in the first quarter reflecting successful pass-through measures. For
the third quarter of 2006, BGP is expected to increase as the benefits of
restructuring and cost reduction plans more than offset normal seasonal
volume softening.
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.
Interest expense, net of capitalized interest, was $21 million lower
than in the year-ago quarter reflecting a higher level of capitalized
interest. In the second quarter, capitalized interest was $20 million,
mainly related to the Gove expansion, compared to $5 million a year ago.
The favourable impact of lower debt levels was partly offset by the effect
of higher interest rates. Compared to the first quarter, interest expense
declined $7 million due to higher capitalized interest.
The Company's effective tax rate on income from continuing operations
was 32% in the second quarter and 35% year to date. Balance sheet
translation losses due to the strengthening of the Canadian dollar
increased the effective tax rate in the second quarter. This was largely
offset by a reduction of Canadian denominated deferred tax liabilities of
$61 million due to a reduction in the Canadian Federal tax rates enacted in
June 2006. In the first quarter, the effective tax rate was 39%, which
reflected a non tax-deductible goodwill charge related to the sale of
selected assets of the packaging bottles business.
OUTLOOK
-------
For 2006, world primary aluminum consumption is forecast to increase by
approximately 6.8% (4.5% 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.
The following table provides Alcan estimates of the annualized
after-tax impact of currency and LME price movements on income from
continuing operations.
Increase In $ /
in rate millions common
/ price of $ share
------------------------------------------------------------------------
Economic impact of changes in.
period-average exchange rates
European currencies $0.10 (56) (0.15)
Canadian dollar $0.10 (110) (0.29)
Australian dollar $0.10 (40) (0.11)
-------------------------------------------------------------------------
Balance sheet translation impact
of changes in period-end exchange rates
Canadian dollar $0.10 (160) (0.43)
Australian dollar $0.10 (30) (0.08)
-------------------------------------------------------------------------
Economic impact of changes
in period-average LME prices(x)
Aluminum $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
summary 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
-----------
"$" 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 Wednesday, August 2, 2006 at 10:00 a.m. EDT and will be
webcast via the Internet at http://www.alcan.com .
Supporting documentation (press release, financial statements and
investor presentation) is available at http://www.alcan.com, using the Investors
link. Miscellaneous and previous years' filings may be accessed using the
following links to the http://www.sec.gov (U.S.) and http://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 has 65,000 employees in 60 countries and regions,
posted revenues of US$20.3 billion in 2005 and was selected as a
Super-Sector Leader on the Dow Jones Sustainability World Index. For more
information, please visit: http://www.alcan.com .
ALCAN INC.
----------
INTERIM CONSOLIDATED STATEMENT OF INCOME (unaudited)
-------------------------------------------------------------------------
Second Quarter Six Months
--------------------------------
Periods ended June 30 2006 2005 2006 2005
--------------------------------
--------------------------------
(in millions of US$, except
per share amounts)
Sales and operating revenues 6,103 5,206 11,653 10,384
Costs and expenses
Cost of sales and operating expenses,
excluding depreciation
and amortization noted below 4,646 4,130 8,774 8,220
Depreciation and amortization 258 268 509 540
Selling, administrative and general expenses 366 345 730 725
Research and development expenses 55 49 107 98
Interest 69 90 145 175
Restructuring charges - net 94 73 108 96
Other expenses (income) - net 2 - (29) 1
--------------------------------
5,490 4,955 10,344 9,855
--------------------------------
Income from continuing operations
before income taxes and other items 613 251 1,309 529
Income taxes 195 70 464 168
--------------------------------
Income from continuing operations
before other items 418 181 845 361
Equity income 37 28 65 57
Minority interests (1) (1) (2) (2)
--------------------------------
Income from continuing operations 454 208 908 416
Income (Loss) from discontinued operations 1 (17) 4 (7)
--------------------------------
Income before cumulative effect
of accounting change 455 191 912 409
Cumulative effect of accounting
change, net of income taxes of
$2 (nil in 2005) (note 4) - - (4) -
--------------------------------
Net income 455 191 908 409
Dividends on preference shares 3 1 5 3
--------------------------------
Net income attributable
to common shareholders 452 190 903 406
--------------------------------
--------------------------------
Earnings (Loss) per share
Basic:
Income from continuing operations 1.21 0.56 2.42 1.11
Income (Loss) from discontinued operations - (0.04) 0.01 (0.02)
Cumulative effect of accounting change - - (0.01) -
--------------------------------
Net income per common share - basic 1.21 0.52 2.42 1.09
--------------------------------
--------------------------------
Diluted:
Income from continuing operations 1.20 0.56 2.41 1.11
Income (Loss) from discontinued operations - (0.04) 0.01 (0.02)
Cumulative effect of accounting change - - (0.01) -
--------------------------------
Net income per common share - diluted 1.20 0.52 2.41 1.09
--------------------------------
--------------------------------
Dividends per common share 0.15 0.30 0.30 0.45
--------------------------------
--------------------------------
ALCAN INC.
----------
INTERIM CONSOLIDATED BALANCE SHEET (unaudited)
-------------------------------------------------------------------------
June December
30, 31,
2006 2005
--------------------------------
(in millions of US$)
ASSETS
------
Current assets
Cash and time deposits 182 181
Trade receivables (net of allowances of $58
in 2006 and $56 in 2005) 3,118 2,308
Other receivables 1,290 946
Deferred income taxes 177 150
Inventories 2,953 2,734
Current assets held for sale 15 119
--------------------------------
Total current assets 7,735 6,438
--------------------------------
Deferred charges and other assets 1,375 1,052
Investments 1,541 1,511
Deferred income taxes 850 863
Property, plant and equipment
Cost (excluding Construction work in progress) 17,433 16,990
Construction work in progress 2,268 1,604
Accumulated depreciation (8,142) (7,561)
--------------------------------
11,559 11,033
--------------------------------
Intangible assets (net of accumulated amortization
of $292 in 2006 and $233 in 2005) 996 1,013
Goodwill 4,636 4,713
Long-term assets held for sale 2 15
--------------------------------
Total assets 28,694 26,638
--------------------------------
--------------------------------
-------------------------------------------------------------------------
June December
30, 31,
2006 2005
--------------------------------
(in millions of US$)
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities
Payables and accrued liabilities 5,217 4,608
Short-term borrowings 349 348
Debt maturing within one year 105 802
Deferred income taxes 32 25
Current liabilities of operations held for sale 11 62
--------------------------------
Total current liabilities 5,714 5,845
--------------------------------
Debt not maturing within one year 5,570 5,265
Deferred credits and other liabilities 2,052 1,608
Post-retirement benefits 3,157 3,037
Deferred income taxes 1,226 1,172
Minority interests 65 67
Shareholders' equity
Redeemable non-retractable preference shares 160 160
Common shareholders' equity
Common shares 6,377 6,181
Additional paid-in capital 671 683
Retained earnings 3,842 3,048
Common shares held by a subsidiary (31) (31)
Accumulated other comprehensive loss (109) (397)
--------------------------------
10,750 9,484
--------------------------------
10,910 9,644
--------------------------------
Total liabilities and shareholders' equity 28,694 26,638
--------------------------------
--------------------------------
ALCAN INC.
----------
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
-------------------------------------------------------------------------
Second Quarter Six Months
--------------------------------
Periods ended June 30 2006 2005 2006 2005
--------------------------------
--------------------------------
(in millions of US$)
OPERATING ACTIVITIES
Net income 455 191 908 409
Cumulative effect of accounting change - - 4 -
Loss (Income) from discontinued operations (1) 17 (4) 7
--------------------------------
Income from continuing operations 454 208 908 416
Adjustments to determine cash from
operating activities:
Depreciation and amortization 258 268 509 540
Deferred income taxes 83 (13) 227 42
Equity income, net of dividends (2) 3 (18) (24)
Asset impairment charges 36 27 45 35
Loss (Gain) on disposal of
businesses and investments - net (4) 17 (4) 16
Stock option compensation 11 5 36 10
Change in operating working capital
Change in receivables (217) (157) (756) (575)
Change in inventories (31) (128) (109) (114)
Change in payables and accrued liabilities 110 (47) 130 (319)
Change in deferred charges, other assets,
deferred credits and other liabilities,
and post-retirement benefits - net 75 43 167 150
Other - net (2) (37) (2) (85)
--------------------------------
Cash from operating activities
in continuing operations 771 189 1,133 92
Cash from (used for) operating activities
in discontinued operations 8 (18) 8 50
--------------------------------
Cash from operating activities 779 171 1,141 142
--------------------------------
FINANCING ACTIVITIES
Proceeds from issuance of new debt
- net of issuance costs 354 780 371 1,216
Debt repayments (770) (610) (836) (1,246)
Short-term borrowings - net 36 29 - (1,993)
Common shares issued 82 6 149 10
Dividends - Alcan shareholders
(including preference) (59) (57) (117) (115)
- Minority interests - (1) (1) (1)
--------------------------------
Cash from (used for) financing
activities in continuing operations (357) 147 (434) (2,129)
Cash from financing activities
in discontinued operations - 41 - 4
--------------------------------
Cash from (used for) financing activities (357) 188 (434) (2,125)
--------------------------------
-------------------------------------------------------------------------
Second Quarter Six Months
--------------------------------
Periods ended June 30 2006 2005 2006 2005
--------------------------------
--------------------------------
(in millions of US$)
INVESTMENT ACTIVITIES
Purchase of property, plant and equipment (469) (441) (895) (698)
Business acquisitions and purchase
of investments, net of cash and
time deposits acquired (2) (42) (40) (42)
Net proceeds from disposal of businesses,
investments and other assets 9 31 207 35
Settlement of amounts due from Novelis - net - - - 2,535
Other 12 - 12 -
--------------------------------
Cash from (used for) investment
activities in continuing operations (450) (452) (716) 1,830
Cash from investment activities
in discontinued operations 5 121 5 64
--------------------------------
Cash from (used for) investment activities (445) (331) (711) 1,894
--------------------------------
Effect of exchange rate changes
on cash and time deposits 2 (11) 5 (29)
--------------------------------
Increase (Decrease) in cash
and time deposits (21) 17 1 (118)
Cash and time deposits
- beginning of period 203 205 181 340
--------------------------------
Cash and time deposits - end of period 182 222 182 222
--------------------------------
--------------------------------
ALCAN INC.
----------
(in millions of US$)
1. BASIS OF PRESENTATION
The unaudited interim consolidated financial statements are 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 interim financial
statements do 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 June 30, 2006 that the Company
expects to file on August 9, 2006.
In the opinion of management of the Company, the unaudited interim
consolidated financial statements reflect 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 these interim
consolidated financial statements 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 $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 second quarter and
six months of 2006 were $89 and $179, respectively (2005: $95 and $185), of
which $20 and $34, respectively (2005: $5 and $10), 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 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 $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 $22.
On March 10, 2006, the Company acquired the operating assets of Daifu
Industries Co. Ltd. of Phetchaburi, Thailand, a company specializing in
hotmelt coating, induction sealing and production of flexible packaging
material, for an initial investment of $8. An additional amount of $1 was
paid in June 2006 based on the audited value of the acquiree's inventory.
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 $9. Alcan Packaging Mohammedia, located in Morocco, is specialized in
cosmetics, hygiene and medical 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 $(5), resulting in a gain on disposal
of $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 $182, resulting in a loss on disposal of $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 $2, resulting in a gain on disposal of $1.
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 $7,
resulting in a loss on disposal of $3.
In June 2006, the Company completed the sale of its Chambery, France,
operation to Compagnia Generale Alluminio S.p.A. for net proceeds of $8,
resulting in no gain or loss on disposal. Chambery 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
$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 $(3), resulting in
a gain on disposal of $1. A provision of $9 was recorded in the fourth
quarter of 2005 based on the expected loss on disposal.
On July 24, 2006, the Company announced that it has signed an agreement
to sell its Cebal Aerosol business to its current management team and to
Natexis Investissement Partners, a part of Natexis Private Equity
investment fund.
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 $12 comprising $1 of severance costs and $11 of
asset impairment charges during the second quarter of 2006.
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 $44 comprising $14 of severance costs, $7 of other costs and $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 $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-Juigne, 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 $17 comprising $16 of severance costs, and $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.
6. CONTINGENCIES
On January 19, 2006, the Company sold claims related to the Enron
bankruptcy to a financial institution for combined proceeds of $62,
recorded in Other expenses (income) - net, resulting in an after-tax gain
of $41.
7. SUBSEQUENT EVENT
In the third quarter of 2006, the Company announced a 33% increase in
the quarterly dividend from $0.15 to $0.20. The dividend of $0.20 per
common share is payable on September 20, 2006 to shareholders of record at
the close of business on August 18, 2006.
Montreal, Canada
2 August 2006
>>
SOURCE ALCAN INC.
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CONTACT:
MEDIA CONTACT: Anik Michaud; (514) 848-8151 ;
Conference call numbers: North America (877) 652-1294, Local &
overseas (706) 643-7783; INVESTOR CONTACT: Corey Copeland, (514)
848-8368; Conference call numbers: North America (877) 421-3963,
Local & overseas (706) 643-9535 To request a free copy of this
organization's annual report, please go to http://www.newswire.ca
and click on reports@cnw.
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