To the Board of Directors and Shareholders of Pechiney
We have audited the accompanying consolidated balance sheets of Pechiney and its subsidiaries as of December 31, 2002, 2001 and 2000, and the related consolidated statements of income, of shareholders' equity and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
These financial statements have been prepared in accordance with accounting principles generally accepted in France, except for the following matter. As described in note 1, in order to comply with the requirements of the United States Securities and Exchange Commission, the Company's financial statements have been restated in the Annual Report on Form 20-F to reflect the consolidation of Pechiney Far East as of December 31, 2001 and 2000 and for each of the three years in the period ended December 31, 2002. Consolidated net income has been decreased by €5 million for the year ended December 31, 2002 and increased by €1 million and €4 million for the years ended December 31, 2001 and 2000, respectively. Under accounting principles generally accepted in France (Avis CNC No. 97-06), prior periods are not permitted to be retroactively restated, and the consolidation of Pechiney Far East was reflected beginning January 1, 2002 in the Pechiney consolidated financial statements filed in France.
In our opinion, except for the effects of the restatement described in the previous paragraph, the consolidated financial statements audited by us present fairly, in all material respects, the financial position of Pechiney as of December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in France.
Accounting principles generally accepted in France vary in certain significant respects from accounting principles generally accepted in the United States of America. The application of the latter, after giving effect to the restatement referred to in Notes 1 and 25, would have affected the determination of consolidated net income for each of the three years in the period ended December 31, 2002 and the determination of consolidated shareholders' equity at December 31, 2002, 2001, and 2000 to the extent summarized in note 25 to the consolidated financial statements.
Paris, France, January 29, 2003, except as to Note 1 Restatement for which the date is October 24, 2003
Years ended December 31, 2002, 2001 and 2000 | ||||||||
(in millions of euros) | Notes | 2002 | 2001 | 2000 | ||||
(Restated) | (Restated) | (Restated) | ||||||
Net sales | 11,909 | 11,512 | 10,874 | |||||
Other operating revenues | 144 | 155 | 153 | |||||
Cost of goods sold (excluding depreciation) | (10,611) | (10,070) | (9,411) | |||||
Selling, general and administrative expense | (610) | (620) | (564) | |||||
Research and development expense | (90) | (97) | (90) | |||||
Depreciation and amortization | 4-6 | (335) | (328) | (303) | ||||
Earnings from operations | 407 | 552 | 659 | |||||
Restructuring expense and long-lived asset writedowns | 4-14 | (145) | (75) | (29) | ||||
Other income (expense) | 17 | (103) | 10 | (8) | ||||
Income from operations | 159 | 487 | 622 | |||||
Financial expense, net | 16 | (49) | (68) | (68) | ||||
Income before income taxes | 110 | 419 | 554 | |||||
Income tax (expense) benefit | 18 | (39) | (130) | (172) | ||||
Net income from consolidated companies | 71 | 289 | 382 | |||||
Equity in net earnings of affiliates | 7 | 3 | 24 | (13) | ||||
Minority interests | 13 | 0 | (28) | (31) | ||||
Net income before goodwill | 74 | 285 | 338 | |||||
Goodwill amortization | 5 | (31) | (29) | (20) | ||||
Exceptional goodwill amortization | 5 | (98) | (22) | - | ||||
Net income (loss) | (55) | 234 | 318 | |||||
Net income per common share "A" (in euros) | 12 | |||||||
- Basic earnings per share | (0.72) | 2.94 | 3.94 | |||||
- Diluted earnings per share | (0.72) | 2.92 | 3.92 | |||||
See Notes to the Consolidated Financial Statements. |
Consolidated Balance Sheets
December 31, 2002, 2001 and 2000 | ||||||||
(in millions of euros) | Notes | 2002 | 2001 | 2000 | ||||
(Restated) | (Restated) | |||||||
ASSETS | ||||||||
Non current assets | ||||||||
Property, plant and equipment, net | 4 | 2,832 | 2,997 | 2,476 | ||||
Goodwill, net | 5 | 637 | 860 | 642 | ||||
Other intangible assets, net | 6 | 163 | 145 | 166 | ||||
Investments in equity affiliates | 7 | 285 | 297 | 261 | ||||
Long-term investments | 8 | 139 | 141 | 149 | ||||
Deferred income taxes | 18 | 505 | 335 | 331 | ||||
Other long-term assets | 9 | 279 | 256 | 233 | ||||
4,840 | 5,031 | 4,258 | ||||||
Current assets | ||||||||
Inventories, net | 10 | 1,525 | 1,601 | 1,448 | ||||
Accounts receivable - trade | 11 | 1,281 | 1,470 | 1,512 | ||||
Deferred income taxes | 18 | 51 | 60 | 53 | ||||
Other receivables and prepaid expenses | 101 | 91 | 353 | |||||
Marketable securities | 15 | 153 | 113 | 86 | ||||
Cash | 15 | 283 | 332 | 377 | ||||
3,394 | 3,668 | 3,829 | ||||||
Total assets | 8,234 | 8,699 | 8,087 | |||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
Shareholders' equity | ||||||||
Capital stock | 1,258 | 1,245 | 1,244 | |||||
Share premium | 790 | 767 | 767 | |||||
Retained earnings | 1,297 | 1,478 | 1,335 | |||||
Cumulative translation adjustment | (151) | 50 | (9) | |||||
Treasury shares | (180) | (140) | (80) | |||||
12 | 3,014 | 3,400 | 3,277 | |||||
Minority interests | 13 | 149 | 169 | 169 | ||||
Shareholders' equity and minority interests | 3,163 | 3,569 | 3,446 | |||||
Long-term provisions | ||||||||
Deferred income taxes | 18 | 195 | 173 | 93 | ||||
Other long-term provisions | 14 | 1,142 | 1,129 | 1,079 | ||||
1,337 | 1,302 | 1,172 | ||||||
Long-term debt | 15 | 1,465 | 971 | 734 | ||||
Current liabilities | ||||||||
Accounts payable - trade | 1,456 | 1,514 | 1,511 | |||||
Other payables and accrued liabilities | 384 | 394 | 599 | |||||
Current portion of long-term debt | 15 | 39 | 37 | 31 | ||||
Short-term bank loans | 15 | 390 | 912 | 594 | ||||
2,269 | 2,857 | 2,735 | ||||||
Total liabilities and shareholders' equity | 8,234 | 8,699 | 8,087 | |||||
Contingencies | 20 | |||||||
See notes to the Consolidated Financial Statements. |
F4
Consolidated Statements of Cash Flows
Years ended December 2002, 2001 and 2000 | ||||||
(in millions of euros) | 2002 | 2001 | 2000 | |||
(Restated) | (Restated) | (Restated) | ||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||
Net income (loss) | (55) | 234 | 318 | |||
Minority interests | 0 | 28 | 31 | |||
Equity in net earnings of affiliates | (3) | (24) | 13 | |||
Depreciation and amortization | 464 | 379 | 323 | |||
Net gain on disposal of long-lived assets | (1) | 1 | (6) | |||
Long-lived assets write-down | 102 | 41 | 13 | |||
Restructuring provision | 38 | 53 | 15 | |||
Deferred income tax expense (benefit) | (28) | 18 | 9 | |||
Other non-cash expense, net : | ||||||
- Pensions and other post-employment benefits | 114 | 98 | 86 | |||
- Depreciation of investments carried at cost and long term loans | 81 | 11 | 18 | |||
- Provision for environment and environmental costs | 35 | (13) | 5 | |||
- Miscellaneous | (7) | (75) | (44) | |||
Gross operating cash flow | 740 | 751 | 781 | |||
Changes in assets and liabilities exclusive of effects of | ||||||
acquisitions, divestitures and translation adjustments: | ||||||
- (Increase) decrease in inventories | (23) | (53) | (138) | |||
- (Increase) decrease in trade receivables | 216 | 195 | (149) | |||
- Increase (decrease) in trade payables | (25) | (108) | 74 | |||
- Restructuring expenditures | (32) | (33) | (47) | |||
- Other changes | (247) | (164) | (125) | |||
Net cash provided by operating activities | 629 | 588 | 396 | |||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||
Additions to property, plant and equipment | (479) | (389) | (287) | |||
Increase in long-term investments | (42) | (582) | (227) | |||
Increase in long-term recevables | (21) | - | (20) | |||
Other (increase) decrease in long-lived assets | (38) | 24 | (12) | |||
Proceeds from sales of other investments, | ||||||
net of cash of businesses sold | 10 | 10 | 480 | |||
Other proceeds from sales of long-term assets | 15 | 15 | 14 | |||
Receipts from other long-term receivables | 18 | 5 | 2 | |||
Net cash used in investing activities | (537) | (917) | (50) | |||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||
Additions to long-term debt | 645 | 262 | 24 | |||
Increase (decrease) in other financial debt | (623) | 285 | (264) | |||
Purchase of Pechiney shares | (40) | (60) | (49) | |||
Share capital increase in Pechiney | 36 | 1 | - | |||
Dividends paid: | ||||||
- by Pechiney | (102) | (111) | (66) | |||
- to minority interests in subsidiaries | (20) | (23) | (6) | |||
Net cash (used in) provided by financing activities | (104) | 354 | (361) | |||
Net effect of foreign currency translation on cash | 14 | (43) | 10 | |||
Net increase (decrease) in cash and cash equivalents | 2 | (18) | (5) | |||
Cash and cash equivalents at beginning of period | 434 | 463 | 468 | |||
Cash and cash equivalents at end of period | 436 | 445 | 463 | |||
SUPPLEMENTAL DISCLOSURES | ||||||
Cash payments during the period for: | ||||||
- Interest | (49) | (81) | (67) | |||
- Income taxes | (132) | (110) | (114) | |||
See Notes to the Consolidated Financial Statements. |
Consolidated Statement of Shareholders' Equity
Years ended December 31, 2002, 2001, and 2000 | |||||||
(in millions of euros) | Number of shares | Capital stock | Treasury shares | Share Premium | Retained earnings | Cumulative translation adjustment (Restated) | Shareholders' equity (Restated) |
Common Shares "A" | 80,485,168 | ||||||
Preferred Shares "B" | 1,091,044 | ||||||
Balance as of December 31, 1999 | 81,576,212 | 1,244 | (31) | 833 | 1,068 | (88) | 3,026 |
Net income | 318 | 318 | |||||
Translation adjustment | 79 | 79 | |||||
Exercise of stock options | 8,978 | - | |||||
Purchase of Pechiney shares | (49) | (49) | |||||
Cash dividends: | |||||||
- Common Shares "A" | (65) | (65) | |||||
- Preferred Shares "B" | (1) | (1) | |||||
Precompte | (31) | (31) | |||||
Common Shares "A" | 80,494,146 | ||||||
Preferred Shares "B" | 1,091,044 | ||||||
Balance as of December 31, 2000 | 1,585,190 | 1,244 | (80) | 767 | 1,355 | (9) | 3,277 |
Net income | 234 | 234 | |||||
Translation adjustment | 59 | 59 | |||||
Exercise of stock options | 41,000 | 1 | 1 | ||||
Purchase of Pechiney shares | (60) | (60) | |||||
Cash dividends: | |||||||
- Common Shares "A" | (78) | (78) | |||||
- Preferred Shares "B" | (4) | (4) | |||||
Precompte | (29) | (29) | |||||
(in millions of euros) | Number of shares | Capital stock | Treasury shares | Share Premium | Retained earnings | Cumulative translation adjustment | Shareholders' equity |
Common Shares "A" | 80,535,146 | ||||||
Preferred Shares "B" | 1,091,044 | ||||||
Balance as of December 31, 2001 | 81,626,190 | 1,245 | (140) | 767 | 1,478 | 50 | 3,400 |
Net income | (55) | (55) | |||||
Translation adjustment | (201) | (201) | |||||
Exercise of stock options | 32,216 | 1 | 1 | ||||
Increase in capital | 855,277 | 13 | 22 | 35 | |||
Purchase of Pechiney shares | (40) | (40) | |||||
Cash dividends: | |||||||
- Common Shares "A" | (78) | (78) | |||||
- Preferred Shares "B" | (2) | (2) | |||||
Precompte and other changes | (46) | (46) | |||||
Common Shares "A" | 81,422,639 | ||||||
Preferred Shares "B" | 1,091,044 | ||||||
Balance as of December 31, 2002 | 82,513,683 | 1,258 | (180) | 790 | 1,297 | (151) | 3,014 |
See Notes to the Consolidated Financial Statements.
Note 1 - Basis of Presentation
Accounting Principles
The consolidated financial statements are prepared in accordance with accounting principles generally accepted in France and, in particular, comply with the principles defined in Regulation 99-02 of the "Comité de réglementation comptable" (CRC). | The use of these accounting principles results in a small number of differences from the use of accounting principles generally accepted in the United States of America, which are also used as a reference by the Group because of the magnitude of its international activities. These differences are presented in note 25. |
Restatement
As disclosed in its previously issued financial statements, the Group consolidated its wholly owned subsidiary, Pechiney Far East, effective January 1, 2002. Prior to January 1, 2002, the Group's interest in Pechiney Far East was accounted for as an unconsolidated subsidiary at historical cost. Subsequent to the filing of the annual report on Form 20-F for the year ended December 31, 2002, it was determined that all controlled subsidiaries, including Pechiney Far East, should have been consolidated for all periods for purposes of complying with the requirements of the United States Securities and Exchange Commission (the "SEC"). The financial statements for the three years ended December 31, 2002 have been restated to consolidate Pechiney Far East effective January 1, 2000. Using the criteria in Staff Accounting Bulletin 99 "Materiality", the Group concluded that after the consolidation of Pechiney Far East, the effect of consolidating the other subsidiaries that were omitted from consolidation was not material to the financial statements. | The restatement of financial statements is prohibited under generally accepted accounting principles in France (French GAAP) after the date of the annual shareholders meeting which approved them. However, the SEC's rules and practices require the Company's French GAAP financial statements to be restated in the Form 20-F to reflect the consolidation of Pechiney Far East as of January 1, 2000 instead of January 1, 2002. This results in restated financial statements for the three years ended, which differ from those approved by the shareholders meeting and from those filed with the Commission des Opérations de Bourse ("COB"). The principal effects of restating prior year financial statements filed with the SEC are summarized in the table below. |
Earnings | Earnings | Earnings | ||||||||||||||
from | Net Income | per Share - | per Share - | Total | Total | Shareholders' | ||||||||||
Net Sales | Operations | (Loss) | Basic | Diluted | Assets | Liabilities | Equity | |||||||||
Year Ended December | ||||||||||||||||
31, 2002 | ||||||||||||||||
Previously reported | 11,909 | 407 | (50) | (0.66) | (0.66) | 8,234 | 5,220 | 3,014 | ||||||||
Adjustment | - | - | (5) | (0.06) | (0.06) | - | - | - | ||||||||
As restated | 11,909 | 407 | (55) | (0.72) | (0.72) | �� | 8,234 | 5,220 | 3,014 | |||||||
Year Ended December | ||||||||||||||||
31, 2001 | ||||||||||||||||
Previously reported | 11,054 | 549 | 233 | 2.92 | 2.90 | 8,683 | 5,288 | 3,395 | ||||||||
Adjustment | 458 | 3 | 1 | 0.02 | 0.02 | 16 | 11 | 5 | ||||||||
As restated | 11,512 | 552 | 234 | 2.94 | 2.92 | 8,699 | 5,299 | 3,400 | ||||||||
Year Ended December | ||||||||||||||||
31, 2000 | ||||||||||||||||
Previously reported | 10,679 | 658 | 314 | 3.90 | 3.88 | 8,073 | 4,800 | 3,273 | ||||||||
Adjustment | 195 | 1 | 4 | 0.04 | 0.04 | 14 | 10 | 4 | ||||||||
As restated | 10,874 | 659 | 318 | 3.94 | 3.92 | 8,087 | 4,810 | 3,277 | ||||||||
(1) As previously reported in the Group's Annual Report on Form 20-F and as reported in accordance with French GAAP in the Group's financial statements filed with the Commission des Opérations de Bourse.
The restatement described above has similar effects on the Group's U.S. GAAP financial information. See Note 25.
New Accounting Standards
Effective January 1, 2002, the Group applied regulation 00-06 of the CRC relating to the accounting for liabilities. The application of this regulation | had no significant impact on the Group's financial position or results of operations. |
Significant Accounting Policies
a) Principles of Consolidation
The consolidated financial statements include Pechiney and subsidiaries in which the Group owns, directly or indirectly, a controlling | interest. The equity method of accounting is used for companies in which the Group does not own a controlling interest but exercises significant influence. |
b) Property, Plant and Equipment
Property, plant and equipment are stated at cost of purchase or construction and are depreciated on a straight-line basis over their estimated useful lives, which are generally as follows: - buildings and structures 25 to 40 years, - machinery and equipment 8 to 25 years, - other 3 to 10 years. Whenever events or changes in circumstances indicate that the carrying amount of long-lived assets may not be recoverable, this carrying amount is compared with the future cash flows (undiscounted and without interest | charges). If the sum of expected future cash flows is less than the carrying amount of the assets, an impairment loss is recognized based on the fair value of the assets, which is generally estimated as the present value of expected future cash flows. Significant acquisitions under capital lease agreements are capitalized on the basis of the present value of future rental costs and depreciated over their estimated useful lives. Interest costs incurred during the period of construction of fixed assets are capitalized as part of acquisition costs. |
c) Intangible Assets
The difference between the purchase price and the book value of net assets acquired is allocated to tangible and intangible assets and to assumed liabilities for which a fair value can be specifically determined. The excess of the purchase price over the fair value of net assets acquired is allocated to goodwill. If an acquisition relates only to a portion of the share capital, this allocation is carried out proportionately, i.e. limited to the portion of shares acquired. Goodwill is amortized on a straight-line basis over a period not exceeding 40 years. The carrying value of goodwill is reviewed annually to reflect changes which may have permanently impaired the profitability and the value of the related assets. Beginning in 2002, this review is carried out in accordance with SFAS 142:
| is compared with the fair value of these reporting units, estimated mainly on the basis of discounted cash flows;
In 2000 and 2001, the carrying value of goodwill was compared with the fair value of the acquired entities and was also reviewed for impairment jointly with the property, plant and equipment with which goodwill was associated. |
d) Inventories
Inventories are stated at the lower of cost or market value. Cost is generally calculated using the weighted average cost method. The last-in-first-out (LIFO) method is used by the following subsidiaries: Pechiney Rhenalu, | Pechiney Rolled Products LLC, Pechiney Cast Plate, Inc. and Pechiney Plastic Packaging, Inc. |
e) Treasury shares
Shares of the parent company Pechiney SA held by consolidated Group companies are presented as a deduction from consolidated equity. |
f) Revenue Recognition
Revenues are recognized as follows:
Contracts for the sale and licensing of primary aluminium smelting technology and know-how typically comprise (i) | compensation for technical documentation, technical assistance and other activities required to transfer the technology and know-how and (ii) licensing fees for the right to use the Pechiney technology. The Group recognizes revenues from the provision of technical documentation, technical assistance and other activities using the percentage of completion method based on the ratio of contract costs measured to date to total estimated contract costs. Anticipated losses, if any, are recognized when identified. The Group recognizes licensing fees for the right to use the Pechiney technology on a pro rata temporis basis over the contract period. |
g) Research and Development Costs
Research and development costs are expensed as incurred. |
h) Foreign Currency Translation of Financial Statements and Transactions
The financial statements of foreign subsidiaries are translated as follows:
|
Exchange differences arising from foreign currency transactions are recorded in the statement of income. |
i) Deferred Income Taxes
Deferred income taxes are accounted for using the liability method on temporary differences between the consolidated financial statements and tax bases and on net operating loss carryforwards. These deferred taxes are measured by applying currently enacted tax laws. Valuation allowances are established on deferred tax assets when management estimates that it is more likely than not that the related benefit will not be realized. Deferred tax assets and liabilities are stated at present value when the impact of | discounting is significant and the timing of reversals is sufficiently reliable. Since these requirement of CRC Regulation 99-02 became mandatory in 2000, these two conditions have not been met. Income taxes which may be incurred upon remittance of the Group's share of foreign subsidiaries' undistributed earnings are provided unless such earnings are expected to be permanently retained. |
j) Pension Plans and Retirement Indemnities
The Group's projected benefit obligations relating to defined benefit pension plans, retirement indemnity schemes and similar schemes are calculated using actuarial assumptions which take into account the | economic situation of each country. These obligations are covered either by plan assets to which the Group contributes or by reserves recorded in the balance sheet over the period the rights are acquired. |
k) Postretirement Benefits Other than Pensions
The Group's obligations relating to healthcare and life insurance benefits are recognized over the period the rights are acquired. The accrued | obligations are based on an actuarial valuation, which takes into account assumptions regarding mortality and future healthcare cost trends. |
l) Commodity Instruments
In order to reduce its exposure to market fluctuations in the price of raw materials, the Group uses various hedging instruments, in accordance with established Group guidelines. Industrial subsidiaries record gains or losses generated by these instruments in the same manner and period as the income or loss on the hedged transactions. If, in very limited circumstances, the instruments do | not constitute a hedge, they are marked to market with the gain or loss immediately recorded in the income statement, in Cost of goods sold. Trading subsidiaries mark to market their contracts. Net unrealized losses are recorded in the income statement, in Cost of goods sold, as well as net unrealized gains. Unrealized gains on contracts involving commodities without a liquid market are deferred until the contract is closed. |
m) Financial Instruments
Due to the magnitude of transactions denominated in foreign currencies and the use of diversified financing, the Group protects itself against market fluctuations, under defined procedures. The Group uses various financial instruments to hedge currency and interest rate risks on assets, liabilities and anticipated transactions, including firm commitments. All foreign exchange and interest rate instruments are either quoted on organized exchanges or are over-the-counter transactions with highly-rated counterparties. Gains or losses on these instruments are accounted for in the same manner and period as the income or loss on the hedged transaction. | Only instruments which reduce the exposure of the Group to currency or interest rate risks and designated as a hedge of the exposed item are accounted for as a hedge. The Group reassesses whether contracts accounted for as hedges continue to constitute hedges in the event of a change in the underlying hedged exposure. In very limited circumstances, certain instruments do not or no longer constitute a hedge. These instruments are marked to market with the gain or loss recorded immediately in the income statement. |
n) Uncertainties Resulting from the Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates and assumptions. Estimates and assumptions are particularly significant with respect | to estimating liabilities such as provisions and accruals for litigation or environmental remediation. They are also significant with respect to assessing the recoverability of the carrying value of property, plant and equipment, intangible assets and deferred tax assets which, to a large extent, is based on estimates of expected future net income or cash flows. Considering the factors specific to the principal businesses of the Group, estimates of future net income and cash flows could vary significantly from actual results. |
o) Cash and Cash Equivalents
For purposes of the statement of cash flows, cash and cash equivalents include all instruments with an original maturity of three months or less. | Cash equivalents are included on the balance sheet in marketable securities and are carried at cost, which approximates market value. |
p) Stock Option Plans and Stock Appreciation Rights Plans
The Group's stock option plans are accounted for using the intrinsic value method. The difference between compensation cost determined under the intrinsic value method and compensation cost determined under the fair value method is disclosed in Note 25. The Group's stock appreciation plans are accounted for as variable stock-based compensation plans. | Compensation cost is measured initially as the difference between (a) the quoted market value of the shares at the grant date and (b) the exercise price and is recognized over the service period. Subsequent changes in the quoted market value of the shares between the date of grant and measurement date are accounted for as changes in estimate in the period of the change. |
q) Environmental Remediation
Liabilities relating to the clean-up of past environmental contamination and other remediation activities are recognized when a clean-up or remediation program becomes probable and the costs can be reasonably estimated. The Group makes provisions for the estimated costs based on current environmental laws and regulatory requirements | and currently available technology. These cost estimates are not discounted and not reduced by potential recoveries from claims under insurance. Recoveries under insurance policies are recognized when the claim is formally accepted by the insurer. |
Note 2 - Changes in the Group Structure
In 2002: In 2001: | |
In 2000:
|
|
Note 3 - Subsequent events
None.
Note 4 - Property, Plant and Equipment
(in millions of euros) | Land and improvements | Buildings and improvements | Machinery, equipment, furniture and tooling | Construction in progress | Total | |||||
Cost as of January 1, 2000 | 84 | 1,155 | 3,850 | 171 | 5,260 | |||||
Additions | 1 | 13 | 87 | 178 | 279 | |||||
Disposals | (1) | (8) | (75) | (1) | (85) | |||||
Translation adjustment | 2 | 47 | 99 | 3 | 151 | |||||
Other changes | 4 | 50 | 207 | (191) | 70 | |||||
Cost as of December 31, 2000 | 90 | 1,257 | 4,168 | 160 | 5,675 | |||||
Accumulated depreciation and write-downs | (10) | (756) | (2,433) | - | (3,199) | |||||
Net book value as of December 31, 2000 | 80 | 501 | 1,735 | 160 | 2,476 | |||||
Cost as of January 1, 2001 | 90 | 1,257 | 4,168 | 160 | 5,675 | |||||
Additions | 1 | 21 | 141 | 230 | 393 | |||||
Disposals | (1) | (5) | (90) | (4) | (100) | |||||
Translation adjustment | 1 | 6 | 88 | 4 | 99 | |||||
Other changes | 8 | 89 | 471 | (130) | 438 | |||||
Cost as of December 31, 2001 | 99 | 1,368 | 4,778 | 260 | 6,505 | |||||
Accumulated depreciation and write-downs | (10) | (806) | (2,692) | - | (3,508) | |||||
Net book value as of December 31, 2001 | 89 | 562 | 2,086 | 260 | 2,997 | |||||
Cost as of January 1, 2002 | 99 | 1,368 | 4,778 | 260 | 6,505 | |||||
Additions | 1 | 24 | 168 | 291 | 484 | |||||
Disposals | - | (13) | (121) | (27) | (161) | |||||
Translation adjustment | (5) | (33) | (309) | (24) | (371) | |||||
Other changes | 10 | 17 | 72 | (167) | (68) | |||||
Cost as of December 31, 2002 | 105 | 1,363 | 4,588 | 333 | 6,389 | |||||
Accumulated depreciation and write-downs | (12) | (826) | (2,719) | - | (3,557) | |||||
Net book value as of December 31, 2002 | 93 | 537 | 1,869 | 333 | 2,832 | |||||
In 2001, "Other changes" relate mainly to the acquisition of Pechiney Eurofoil Belgium, Pechiney Eurofoil Luxemburg and companies of the | Soplaril Group, as well as to the share of fixed assets corresponding to the increase of the Group's ownership in the Tomago plant. |
(in millions of euros, as of december 31) | 2002 | 2001 | 2000 | |||
Capital lease | ||||||
- gross value | 84 | 84 | 82 | |||
- net book value | 24 | 26 | 30 | |||
Depreciation charges and losses due to the writedown of property, plant and equipment were as follows:
(in millions of euros, for the year ended December 31) | 2002 | 2001 | 2000 | |||
Depreciation charges | 301 | 292 | 269 | |||
Write-downs of property, plant and equipment | 102 | 19 | 13 | |||
Write-downs of property, plant and equipment are primarily due to: |
|
Note 5 - Goodwill, net
(in millions of euros, as of December 31) | 2002 | 2001 | 2000 | |||
Goodwill, gross | 968 | 1,102 | 822 | |||
Accumulated amortization | (331) | (242) | (180) | |||
Goodwill, net | 637 | 860 | 642 | |||
Analysis of and Changes in Goodwill
Changes in goodwill since January 1, 2000 are presented in the following table:
(in millions of euros) | |
Goodwill, net, as of January 1, 2000 | 531 |
Amortization | (20) |
Additions | 106 |
Divestitures / de-consolidation | - |
Translation adjustment | 27 |
Other | (2) |
Goodwill, net, as of December 31, 2000 | 642 |
Amortization | (29) |
Writedown | (22) |
Additions | 252 |
Divestitures | (1) |
Translation adjustment | 23 |
Other | (5) |
Goodwill, net, as of December 31, 2001 | 860 |
Amortization | (31) |
Writedown | (98) |
Additions | 12 |
Divestitures | (3) |
Translation adjustment | (99) |
Other | (4) |
Goodwill, net, as of December 31, 2002 | 637 |
As of December 31, 2002, goodwill relates principally to Pechiney Plastic Packaging, Inc. (€ 267 million), Financière Techpack and its subsidiaries (€ 116 million), Soplaril S.A. (€ 84 million) and Pechiney Pacific PTY Ltd (€ 51 million). Write-down of goodwill in 2002 mainly relates to Techpack International activities (€ 73 million) and the North American activities of the Aluminium Conversion segment (€ 16 million). In 2002, the translation adjustment stems from the change in euro-dollar exchange rate. The additions to goodwill for the year 2001 are mainly due to the consolidation of Cebal Brasil Limitada on January 1, 2001, the acquisitions | of SAPA Eurofoil SA in June 2001 and the Soplaril Group in July 2001 and the increase (from 36.1% to 51.6%) in the Group's share in the Tomago plant in October 2001. Write-down of goodwill in 2001 relates to the Hair care and Toiletries activity of Techpack International. The additions to goodwill for the year 2000 are mainly due to the acquisition of Anchor Cosmetics (renamed Techpack America Cosmetics Packaging, L.P.) in November 2000, to the purchase price adjustments related to the acquisitions of Pechiney Rolled Products LLC and Pechiney Cast Plate, Inc., which were acquired in 1999, and to the increase in the Group's ownership interest (from 92% to 100%) in Financière Techpack in January 2000. |
Note 6 - Other Intangible Assets
Other intangible assets mainly consist of: | For the year ended December 31, 2002, amortization expense for other intangible assets amounted to € 34 million (€ 36 million and € 34 million for each of the years ended December 31, 2001 and 2000, respectively). |
Note 7 - Investments in Equity Affiliates
(in millions of euros) | 2002 | 2001 | 2000 | ||
Beginning of period | 297 | 261 | 777 | ||
Changes: | |||||
- Equity in net income of Queensland Alumina Limited and Pechiney Reynolds Québec Inc.(*) | 15 | 4 | (3) | ||
- Equity in net income of other affiliates | 3 | 24 | (13) | ||
- Dividends received from equity affiliates | (3) | (9) | (14) | ||
- Divestitures and reduction in ownership percentage | - | - | (502) | ||
- Translation adjustment | (22) | 6 | 4 | ||
- Other | (5) | 11 | 12 | ||
End of period | 285 | 297 | 261 | ||
(*) Pechiney Resources PTY Ltd., an Australian subsidiary of Pechiney, owns a 20% interest in an incorporated venture through which Queensland Alumina Limited (QAL) owns and operates on a cooperation basis an alumina tolling facility with an annual capacity of 3,750,000 metric tons, located in Australia. QAL mostly supplies alumina to the Group's aluminum smelters at Tomago (Australia) and Becancour (Canada). Pechiney Reynolds Québec, Inc. (PRQ), 50 percent owned by the Group, holds a 50.1% interest in the company Aluminerie de Becancour, Inc. which operates, on a cooperative basis, the Becancour aluminum smelter with an annual capacity of 400,000 metric tons. PRQ is required to purchase its share of aluminum output and to finance its share of operating costs incurred. The Group's share in the net income (loss) of QAL and PRQ is consequently included, together with the Group's share in the net income of the partnerships, as a component of cost of goods sold. |
The Group's remaining ownership interest of 45.45% in American National Can Group, Inc. (ANC) was sold in July 2000. The Group's interest in ANC was accounted for under the equity method since August 1, 1999 with an initial investment recorded on that date of € 457 million. | For the year ended 2000, the Group's share in the net income of its equity affiliates includes a loss of € 46 million related to the write-off of the goodwill recorded by ANC in the first quarter of 2000. |
Key Financial Information of Equity Affiliates
Key financial information are derived from financial statements of the Group's equity affiliates prepared on the same basis as the Group's financial statements. | The following table includes financial data relating to all equity affiliates as of and for the years ended December 31, 2002, 2001 and 2000. This financial data is extracted from the affiliates financial statements and include the Group's share and the majority interests in these companies. |
(in millions of euros) | 2002 | 2001 | 2000 | |||
Balance sheet data (as of December 31): | ||||||
Current assets | 479 | 785 | 718 | |||
Non-current asset | 1,073 | 1,143 | 1,106 | |||
Current liabilities | 605 | 659 | 529 | |||
Non-current liabilities | 282 | 518 | 670 | |||
Statement of income data (year ended December 31): | ||||||
Net sales | 1,254 | 1,444 | 1,369 | |||
Gross profit | 247 | 328 | 332 | |||
Net income | (34) | 82 | 69 | |||
Note 8 - Long-Term Investments | ||||||
Long-term investments amounted to € 139 million, € 141 million and € 149 million at December 31, 2002, 2001 and 2000 respectively. The change in long-term investments is primarily due to the write down of certain investments largely off set by the purchase of new investments | and the inclusion of the shares in Skw Stahl Holding (Germany), received in payment for the asset contribution of certain activities of the Ferroalloys Division. |
Note 9 - Other Long-Term Assets
(in millions of euros, as of December 31) | 2002 | 2001 | 2000 | |||
Non-current receivables(*) | 49 | 55 | 60 | |||
Prepaid pensions (see Note 14a) | 7 | 12 | 13 | |||
Additional minimum pension liabilities, | ||||||
net of related tax effect (see Note 14a) | 141 | 121 | 98 | |||
Other | 82 | 68 | 62 | |||
Total | 279 | 256 | 233 | |||
(*) Including long-term loans to Aluminium Dunkerque: | 33 | 50 | 54 | |||
Note 10 - Inventories | ||||||
(in millions of euros, as of December 31) | 2002 | 2001 | 2000 | |||
Raw materials and supplies | 427 | 428 | 368 | |||
Work in progress | 468 | 469 | 449 | |||
Finished and semi-finished goods | 658 | 735 | 642 | |||
Inventories, gross | 1,553 | 1,632 | 1,459 | |||
Less: allowance for slow-moving inventories and others | (28) | (31) | (11) | |||
Inventories, net | 1,525 | 1,601 | 1,448 | |||
(in millions of euros, as of December 31) | 2002 | 2001 | 2000 | |||
Valuation of inventories on a weighted average cost basis instead of a LIFO | ||||||
basis would have increased the carrying value of inventories by | 5 | 16 | 17 | |||
% of total inventories valued on a LIFO basis | 31 | 31 | 31 | |||
Note 11 - Accounts Receivable - Trade | ||||||
(in millions of euros, as of December 31) | 2002 | 2001 | 2000 | |||
(Restated) | (Restated) | |||||
Accounts and notes receivable | 1,051 | 1,269 | 1,298 | |||
Other | 265 | 244 | 246 | |||
Less allowance for doubtful recevables | (35) | (43) | (32) | |||
Total | 1,281 | 1,470 | 1,512 | |||
The activity in the allowance for doubtful receivables was as follows: | |||||
(in millions of euros) | 2002 | 2001 | 2000 | ||
Balance at beginning of year | 43 | 32 | 29 | ||
Provision charged to (released to) income | (2) | 16 | 3 | ||
Writeoff of uncollectable receivables, net of recoveries | (2) | (1) | (1) | ||
Translation adjustment | (4) | 1 | 1 | ||
Other changes | - | (5) | - | ||
Balance at end of year | 35 | 43 | 32 | ||
The credit risk arising from accounts and notes receivable is limited due to the large number of customers comprising such receivables. These customers | are spread among many industrial sectors and geographic locations. Receivables sold are presented in note 20. |
Note 12 - Shareholders' Equity
a) Capital Stock
As of December 31, 2002, 2001 and 2000 the capital stock was divided into common shares "A" and preferred shares "B", each having a par value of € 15.25 per share. Prior to the conversion of capital stock to euros on January 28, 1999, the par value was FF 100 per share or € 15.24 per share. Each preferred share "B" includes a voting right and entitles its holder to a | preferred annual dividend of 9.5% of par value and, under certain conditions, to an additional dividend. Each common share "A" includes a voting right and entitles its holder to a dividend which, in any given year, cannot exceed the amount of the aggregate dividend paid per preferred share "B". |
b) Changes in Capital Stock
1999 Conversion of Capital to Euros The conversion to euros of the par value of each share "A" and each share "B", approved by the Board of Directors on January 28, 1999 in accordance with the authorization granted by shareholders at the Annual General Meetings on June 25, 1997 and May 18, 1998, resulted in, with the effect of rounding, an increase in the par value of shares "A" and "B" to € 15.25 per share. As a result, the capital stock of the Group increased by € 415,817.39, such amount having been transferred from retained earnings. After this conversion, capital stock amounted to € 1,243,795,901.75. Exercise of stock options 2000 | the Board of Directors on June 26, 1996 pursuant to the authorization granted by shareholders at the March 29, 1996 Annual General Meeting. This resulted in an increase in capital stock related to the exercise of these options of € 136,914.50 corresponding to 8,978 new shares "A" issued with a par value of € 15.25, and an increase in capital premium of € 147,863.56. It corresponds to 7,950 new shares with a premium of € 16.56 for each new share (before legal adjustments) and to 1,028 new shares with a premium of € 15.77 for each new share (after legal adjustments) . 2001 Exercise of stock options During 2001, 41,000 options were exercised. These options were granted by the Board of Directors on June 26, 1996 pursuant to the authorization granted by shareholders at the March 29, 1996 Annual General Meeting. This resulted in an increase in capital stock related to the exercise of these options of € 625,250 corresponding to 41,000 new shares "A" issued with a par value of €15.25 and an increase in capital premium of € 646,570 corresponding to € 15.77 for each new share. As of December 31, 2001, capital stock amounted to € 1,244,799,397.50, representing 81,626,190 shares (80,535,146 shares "A" and 1,091,044 shares "B") with a par value of € 15.25 per share. |
2002 Capital increase reserved for employees 855,277 new shares "A" were issued on January 24, 2002 at a price per share of € 45,65 to complete an increase of capital reserved to employees under Articles L.225-138-IV of the French Commercial Code and Article L.443-5 of the French Labor Code, in accordance with the authorization granted by the Shareholders' meeting held on March 29, 2001 under its thirteenth resolution and final terms and conditions fixed by the board of directors on December 14, 2001 accordingly. All of these newly issued shares were subscribed, either directly or through employee mutual investment funds (FCPE) governed by Articles L.214-24 and L.214-40 of the French Financial and Monetary Code, by employees of Pechiney and employees of French and foreign companies which was affiliated to Pechiney in the meaning of Article L.225-80 of the French Commercial Code and have adhered in accordance with Article L.444-3 of the French Labor Code to a Group Shareholding Plan established by Pechiney under Articles L.443-1 and seq. of the French Labor Code. As a result, capital stock amounted to € 1,257,842,371.75, representing 82,481,467 shares (of which 81,390,423 shares "A" and 1,091,044 shares "B") with a par value of € 15.25 per share. | Issuing of debt securities exchangeable for existing shares, or convertible into new shares (OCEANE). In April 2002, Pechiney issued debt securities for an aggregate amount of € 595,124,859 face value, representing 7,908,636 bonds convertible into new shares "A" and/or exchangeable for existing shares "A", with a par value of € 75.25 per bond. From May 21, 2002 to December 20, 2006, each of these bonds can be exchanged for existing shares "A" and/or converted into new shares "A" to be issued by Pechiney, at a ratio of one share for one bond (subject to adjustment of this exchange and/or conversion ratio in case of financial operations identified at the time of issuance of these bonds). During 2002, none of these debt securities was converted into new shares "A". Exercise of stock options As of December 31, 2002, capital stock amounted to € 1,258,333,665.75, representing 82,513,683 shares (of which 81,422,639 shares "A" and 1,091,044 shares "B") with a par value of € 15.25 per share. |
c) Capital structure and voting rights breakdown as of December 31, 2002, 2001 and 2000
According to information received by Pechiney, the breakdown of capital stock and voting rights was as follows As of December 31, 2002, 2001 and 2000:
as of December 31, 2002 | as of December 31, 2001 | as of December 31, 2000 | |||||||||||||||
Number | % of share capital | % | Number | % | % | Number | % | % | |||||||||
Shares "A" | |||||||||||||||||
Employees(1) | 2,051,394 | 2.48 | 2.64 | 1,429,602 | 1.75 | 1.83 | 1,916,000 | 2.35 | 2.41 | ||||||||
Pechiney(2) | 3,720,170 | 4.51 | - | 2,557,896 | 3.13 | - | 1,163,642 | 1.43 | - | ||||||||
Pechiney Nederland N.V. (2) | 982,669 | 1.19 | - | 982,669 | 1.20 | - | 982,669 | 1.20 | - | ||||||||
FLOATING STOCK | |||||||||||||||||
(inst. investors & public)of which | 74,668,406 | 90.49 | 95.98 | 75,564,979 | 92.58 | 96.79 | 76,431,835 | 93.68 | 96.22 | ||||||||
- Franklin Resources, Inc.(3) | 5,396,777 | 6.54 | 6.94 | 5,469,983 | 6.70 | 7.01 | 4,481,788 | 5.49 | 5.64 | ||||||||
- Groupe AGF Assurances(4) | 5,081,067 | 6.16 | 6.53 | 5,081,067 | 6.22 | 6.51 | 5,081,067 | 6.23 | 6.40 | ||||||||
- Fidelity Investments(5) | 4,179,328 | 5.06 | 5.37 | 3,354,066 | 4.11 | 4.30 | - | - | - | ||||||||
- Groupe Caisse des Dépèts(6) | 3,743,668 | 4.54 | 4.81 | 3,507,782 | 4.29 | 4.49 | 3,567,853 | 4.37 | 4.49 | ||||||||
- Groupe BNP Paribas(7) | 1,553,733 | 1.88 | 2.00 | 2,891,584 | 3.54 | 3.70 | 2,891,584 | 3.54 | 3.64 | ||||||||
- Electricité de France(8) | - | - | - | 6,321,990 | 7.75 | 8.10 | 6,321,990 | 7.75 | 7.96 | ||||||||
Shares "B" | |||||||||||||||||
Pechiney(2) | 14,099 | 0.02 | - | 14,099 | 0.02 | - | - | - | - | ||||||||
FLOATING STOCK | |||||||||||||||||
(inst. investors & public) | 1,076,945 | 1.31 | 1.38 | 1,076,945 | 1.32 | 1.38 | 1,091,044 | 1.34 | 1.37 | ||||||||
Total | 82,513,683 | 100.00 | 100.00 | 81,626,190 | 100.00 | 100.00 | 81,585,190 | 100.00 | 100.00 | ||||||||
(1)Shares held through employee mutual investment funds (FCPE) under a Group employee shareholding plan, or directly held after having been acquired or freely received from the French State at the time of privatization of Pechiney and currently freely tradable. (2)In accordance with French law, treasury shares and shares held by a direct or indirect subsidiary of the Company have no voting rights. (3)Shares held by Franklin Resources, Inc. and its subsidiaries are comprised primarily of those held by Franklin Templeton through its investment funds and managed clients accounts. Last declaration of crossed threshold dated February 28, 2002. (4)Last declaration of crossed threshold dated May 13, 2002. (5)FMR Corp and Fidelity International Ltd, for investments funds held by their subsidiaries. Last declaration of crossed threshold dated December 20, 2002. (6)Directly or through investment funds or trading or other companies controlled by Caisse des Dépèts et Consignations. Last declaration of crossed threshold dated September 2, 2002. (7) Last declaration of crossed threshold dated October 29, 2002. (8) Last declaration of crossed threshold dated February 28, 2002. |
The shareholdings mentioned in this table are those the Company is aware of in accordance with declaration for crossed thresholds received by the Company or published by the French Financial Market Council (Conseil des Marchés Financiers). These shareholdings may have changed since the date of reception or publication of the most recent declarations. To the knowledge of the Company, no shareholder is lastingly linked to the Company except for the Company itself, its Dutch subsidiary Pechiney Nederland N.V and employees of the Group. Although disparities in the capital structure exist between the last 3 fiscal years, there is no particular rationale for such disparities since the holding of shares in the Company usually results from the way under which those holding shares in the | Company deal with their portfolios of securities under their own plans and policies. To the knowledge of the Company, there is no natural person or legal entity holding individually more than 5% of the share capital or voting rights in the Company except for AGF Vie. The articles of association of the Company (by-laws) do not permit the award of voting rights above the ratio of one voting right per share, and do not set forth a ceiling on quantity of voting rights respectively held by each shareholder. Any disparity between the percentage of capital and the percentage of voting rights held by a shareholder for a same quantity of stock only results from the number of treasury shares and shares held by direct or indirect subsidiaries of the Company, which shares have no voting right. |
d) Share Premium and Retained Earnings
Share premium represents the difference between the issue price in cash or in-kind and the par value of the shares, net of issuance costs. Share premium amounted to € 790 million as of December 31, 2002, € 22 million of which related to the share capital increase reserved for employees. | Pechiney's distributable retained earnings amount to € 1.594 million and would be subject to additional withholding tax of a maximum amount of € 369 million in the event of total distribution.
|
e) Cumulative Translation Adjustment of Subsidiaries within Euro Zone
The cumulative translation adjustment as of December 31, 2002 includes a net credit of € 47 million related to translation differences arising from balances of subsidiaries within the euro zone. These differences will be | recognized in income in the event that the Group's investment in these subsidiaries is sold or liquidated. |
f) Treasury Shares
When Pechiney International was merged into Pechiney in December 1997, Pechiney Nederland N.V., a subsidiary of Pechiney, received 982,320 common shares "A" of Pechiney in exchange for its ownership interest in Pechiney International. In addition, in May 1998, Pechiney Nederland N.V. purchased outstanding shares of Pechiney International "over the counter" and exchanged them for 349 common shares "A". As of December 31, 2002, these common shares "A" of Pechiney, which have been retained by the Group, are presented in the Consolidated Balance Sheet as a reduction in shareholders' equity in the amount of € 31 million, representing Pechiney Nederland N.V.'s share of in the carrying value of Pechiney International at the date of the merger, increased by the amount of the additional purchase value. | Using the authorizations granted by shareholders at the March 28, 2002, March 29, 2001 and June 2, 1999 Annual General Meetings, Pechiney purchased 1,162,274 common shares "A" during 2002, 1,394,254 common shares "A" and 14,099 preferred shares "B" during 2001 and 1,163,642 common shares "A" during 2000, to reduce the excessive fluctuation in the Group's share price, to ensure stabilization and liquidity of the market for these shares and to enable the exercise of options granted to employees. As of December 31, 2002, the common shares "A" of Pechiney which have been retained by the Group are presented in the consolidated balance sheet as a reduction in shareholders' equity in the amount of € 149 million. |
g) Stock Option Plans
Each year since 1996, pursuant to the authorizations granted by the Shareholders at the March 2001, June 1997 and March 1996 General Meetings, the Board of Directors has granted options to certain officers and | employees of the Group to subscribe to or purchase common shares "A". The following table summarizes information regarding the stock subscription option and stock purchase option plans: |
Number of | Exercise Price | ||
Options(1)(2) | (3)(4) | Other information(6) | |
Authorization date by shareholders' meeting: March 29, 1996 | |||
Plan June 1996 (Stock subscription options) | 31.02 euros | Granting date by the Board of directors: June 26, 1996 | |
Outstanding as of January 1, 2002 | 292,410 | Number of rights initially granted: 460,500 | |
Cancelled in 2002 | (8,085) | Legal adjustments: 8,713 (2) | |
Exercised in 2002 | (32,216) | Number of shares already subscribed: (98,019) | |
Outstanding as of December 31, 2002 | 252,109 | Number of options cancelled: (119,085) | |
Executive Committee: (5) | 31,877 | Number of underlying shares still under options: 252,109 | |
Number of remaining beneficiaries: | 322 | Options vesting date: June 26, 1999 | |
Executive Committee: (5) | 4 | Options expiration date: June 25, 2006 | |
Authorization date by shareholders' meeting: March 29, 1996 | |||
June, 1997 Plan (Stock subscription options) | 29.25 euros | Granting date by the Board of directors: June 25, 1997 | |
Outstanding as of January 1, 2002 | 15,382 | Number of rights initially granted: 15,000 | |
Cancelled in 2002 | - | Legal adjustments: 382 (2) | |
Exercised in 2002 | - | Number of shares already subscribed: (0) | |
Outstanding as of December 31, 2002 | 15,382 | Number of options cancelled: (0) | |
Executive Committee: (5) | 15,382 | Number of underlying shares still under options: 15,382 | |
Number of remaining beneficiaries: | 1 | Options vesting date: June 26, 2000 | |
Executive Committee: (5) | 1 | Options expiration date: June 25, 2007 | |
Number of | Exercise | ||
Options | Price (3)(4) | Other information(6) | |
Authorization date by shareholders' meeting: June 25, 1997 | |||
September, 1997 Plan (Stock subscription options) | 38.14 euros | Granting date by the Board of directors: June 25, 1997 | |
Outstanding as of January 1, 2002 | 409,230 | Number of rights initially granted: 541,500 | |
Cancelled in 2002 | (21,027) | Legal adjustments: 10,911 (2) | |
Exercised in 2002 | - | Number of shares already subscribed: (0) | |
Outstanding as of December 31, 2002 | 388,203 | Number of options cancelled: (164,208) | |
Executive Committee: (5) | 75,883 | Number of underlying shares still under options: 388,203 | |
Number of remaining beneficiaries: | 164 | Options vesting date: September 16, 2002 | |
Executive Committee: (5) | 5 | Options expiration date: September 15, 2007 | |
Authorization date by shareholders' meeting: June 25, 1997 | |||
May, 1998 Plan (Stock subscription options) | 41.27 euros | Granting date by the Board of directors: May 18, 1998 | |
Outstanding as of January 1, 2002 | 15,382 | Number of rights initially granted: 15,000 | |
Cancelled in 2002 | - | Legal adjustments: 382 (2) | |
Exercised in 2002 | - | Number of shares already subscribed: (0) | |
Outstanding as of December 31, 2002 | 15,382 | Number of options cancelled: (0) | |
Executive Committee: (5) | 15,382 | Number of underlying shares still under options: 15,382 | |
Number of remaining beneficiaries: | 1 | Options vesting date: May 19, 2003 | |
Executive Committee: (5) | 1 | Options expiration date: May 18, 2008 | |
Authorization date by shareholders' meeting: June 25, 1997 | |||
November, 1998 Plan (Stock subscription options) | 26.69 euros | Granting date by the Board of directors: November 25, 1998 | |
Outstanding as of January 1, 2002 | 255,924 | Number of rights initially granted: 337,500 | |
Cancelled in 2002 | (14,359) | Legal adjustments: 6,397 (2) | |
Exercised in 2002 | - | Number of shares already subscribed: (0) | |
Outstanding as of December 31, 2002 | 241,565 | Number of options cancelled: (102,872) | |
Executive Committee: (5) | 0 | Number of underlying shares still under options: 241,565 | |
Number of remaining beneficiaries: | 159 | Options vesting date: November 25, 2003 | |
Executive Committee: (5) | 0 | Options expiration date: November 24, 2008 | |
Authorization date by shareholders' meeting: June 25, 1997 | |||
June, 1999 Plan (Stock subscription options) | 37.47 euros | Granting date by the Board of directors: June 3, 1999 | |
Outstanding as of January 1, 2002 | 349,674 | Number of rights initially granted: 372,000 | |
Cancelled in 2002 | (27,687) | Legal adjustments: 9,209 (2) | |
Exercised in 2002 | - | Number of shares already subscribed: (0) | |
Outstanding as of December 31, 2002 | 321,987 | Number of options cancelled: (59,222) | |
Executive Committee: (5) | 205,085 | Number of underlying shares still under options: 321,987 | |
Number of remaining beneficiaries: | 16 | Options vesting date: June 3, 2004 | |
Executive Committee: (5) | 5 | Options expiration date: June 2, 2009 | |
Authorization date by shareholders' meeting: June 25, 1997 | |||
November, 1999 Plan (Stock subscription options) | 50.01 euros | Granting date by the Board of directors: November 8, 1999 | |
Outstanding as of January 1, 2002 | 347,745 | Number of rights initially granted: 373,000 | |
Cancelled in 2002 | (16,923) | Legal adjustments: 9,309 (2) | |
Exercised in 2002 | - | Number of shares already subscribed: (0) | |
Outstanding as of December 31, 2002 | 330,822 | Number of options cancelled: (51,487) | |
Executive Committee: (5) | 0 | Number of underlying shares still under options: 330,822 | |
Number of remaining beneficiaries: | 257 | Options vesting date: November 8, 2004 | |
Executive Committee: (5) | 0 | Options expiration date: November 7,2009 | |
Number of | Exercise | ||
Options | Price (3)(4) | Other information(6) | |
Authorization date by shareholders' meeting: June 25, 1997 | |||
December, 2000 Plan (Stock subscription options) | 46.35 euros | Granting date by the Board of directors: December 22, 2000 | |
Outstanding as of January 1, 2002 | 973,300 | Number of rights initially granted: 989,300 | |
Cancelled in 2002 | (49,600) | Legal adjustments: n/a | |
Exercised in 2002 | - | Number of shares already subscribed: (0) | |
Number of options cancelled: (65,600) | |||
Number of underlying shares still under options: 923,700 | |||
Outstanding as of December 31, 2002 | 923,700 | Options vesting date: December 23, 2004 | |
Executive Committee: (5) | 260,000 | of which progressively vest from December 23, 2001: 133,300(6) | |
Number of remaining beneficiaries: | 336 | ||
Executive Committee: (5) | 5 | Options expiration date: December 22, 2010 | |
Authorization date by shareholders' meeting: March 29, 2001 | |||
July, 2001 Plan (Stock purchase options) | 60.06 euros | Granting date by the Board of directors: July 25, 2001 | |
Outstanding as of January 1, 2002 | 80,300 | Number of rights initially granted: 80,300 | |
Cancelled in 2002 | - | Legal adjustments: n/a | |
Exercised in 2002 | - | Number of shares already purchased: (0) | |
Number of options cancelled: (0) | |||
Outstanding as of December 31, 2002 | 80,300 | Number of underlying shares still under options: 80,300 | |
Executive Committee: (5) | 50,000 | Options vesting date: July 25, 2005 | |
Number of remaining beneficiaries: | 8 | of which progressively vest from July 26, 2002: 3,300 (6) | |
Executive Committee: (5) | 1 | Options expiration date: July 25, 2011 | |
Authorization date by shareholders' meeting: March 29, 2001 | |||
March, 2002 Plan (Stock purchase options) | 59.84 euros | Granting date by the Board of directors: March 28, 2002 | |
Outstanding as of March 28, 2002 | 920,100 | Number of rights initially granted: 920,100 | |
Cancelled in 2002 | (4,600) | Legal adjustments: n/a | |
Exercised in 2002 | - | Number of shares already purchased: (0) | |
Number of options cancelled: (4,600) | |||
Outstanding as of December 31, 2002 | 915,500 | Number of underlying shares still under options: 915,500 | |
Executive Committee: (5) | 192,000 | Options vesting date: March 29, 2006 | |
Number of remaining beneficiaries: | 449 | of which progressively vest from March 29, 2003: 162,200 (6) | |
Executive Committee: (5) | 6 | Options expiration date: March 28, 2012 | |
(1) | Subject to adjustments in connection with changes in the capital stock. |
(2) | Including adjustments made following a decision by the Board of Directors on May 12, 2000 in accordance with the articles 174-12 and 174-13 of the French decree number 67-236 on March 23, 1967, on the basis of the average opening quoted price of common shares "A" of € 49.04 during the period from May 2, 2000 to June 5, 2000 and a distribution of reserves amount to € 1.215 per shares "A" and "B" on June 30, 2000 in accordance with the 5th resolution of General Meeting of shareholders held on March 30, 2000. |
(3) | After adjustment mentioned in (2). |
(4) | Shares must be fully paid for in cash upon exercise of options. |
(5) | In its composition at December 31, 2002. |
(6) | Participant having their tax residency within the United States of America at the time of exercise of their options may exercise their options within the proportion of 25% as from the first anniversary of the date of grant, of 50% as from the second anniversary of the date of grant, of 75% as from the third anniversary of the date of grant and of 100% as from the fourth anniversary of the date of grant. Indication in this table of the quantity of options for which aforesaid progressive vesting is applicable is an estimation of the aggregate number of options so still concerned as of December 31, 2002. |
As of December 31, 2002, 3,484,950 options were outstanding. The range of exercise prices of these options (after legal adjustments) was € 26.69 - € 60.06 and the weighted-average exercise price was € 46.27. The weighted-average remaining contractual life of these options was 7.22 years. | In addition, certain American subsidiaries of the Group granted certain executive officers, senior management and certain former employees with Stock Appreciation Rights plans providing for incentive compensation based on changes in the quoted price of Pechiney American Deposit Shares listed on the New York Stock Exchange. The related compensation represented an income of € 0.3 million in 2002, an expense of € 0.6 million in 2001 and an income of € 3 million in 2000 representing the payments made and the impact of the decrease or increase in the quoted price on outstanding rights at year-end. |
The following table summarizes information regarding the Stock Appreciation Rights Plans:
Number | |||
Stock Appreciation Rights Plans | of rights | Exercise price | Exercise period |
November 1998 Plan | 16.16 dollars | ||
Outstanding as of January 1, 2002 | 23,300 | ||
Exercisable in 2002 | 23,300 | ||
Exercised in 2002 | 5,300 | ||
Cancelled in 2002 | 18,000 | ||
Outstanding as of December 31, 2002 | - | ||
February 1999 Plan | 18.56 dollars | ||
Outstanding as of January 1, 2002 | 34,850 | ||
Exercisable in 2002 | 34,850 | ||
Exercised in 2002 | 20,000 | ||
Cancelled in 2002 | 6,600 | ||
Outstanding as of December 31, 2002 | 8,250 | January 1, 2003 - February 9, 2003: 8,250 rights | |
November 1999 Plan | 26.10 dollars | ||
Outstanding as of January 1, 2002 | 106,300 | ||
Exercisable in 2002 | 106,300 | ||
Exercised in 2002 | - | ||
Cancelled in 2002 | 6,500 | January 1, 2003 - June 14, 2003: 30,000 rights | |
Outstanding as of December 31, 2002 | 99,800 | January 1, 2003 - November 7, 2003: 69,800 rights | |
September 2000 Plan | 19.88 dollars | ||
Outstanding as of January 1, 2002 | 39,450 | ||
Exercisable in 2002 | 39,450 | ||
Exercised in 2002 | 10,250 | ||
Cancelled in 2002 | - | ||
Outstanding as of December 31, 2002 | 29,200 | January 1, 2003 - September 21, 2004: 29,200 rights | |
September 2001 Plan | 16.53 dollars | ||
Granted in 2002 | 66,600 | ||
Exercisable in 2002 | 66,600 | ||
Exercised in 2002 | - | ||
Cancelled in 2002 | - | January 1, 2003 - September 21, 2005: 33,300 rights | |
Outstanding as of December 31, 2002 | 66,600 | September 21, 2003 - September 21, 2005: 33,300 rights | |
h) Earnings per Share
Common Shares "A" Computation of basic earnings per share: basic net income (loss) per common share "A" is computed by subtracting the preferred dividend payable to holders of preferred shares "B" from net income (loss) and dividing the resulting number by the aggregate weighted-average number of common shares "A" and preferred shares "B" outstanding during the period. Computation of diluted earnings per share: the computation of diluted net income (loss) per common share "A" is similar to the computation of basic earnings per share, except that the denominator is increased to include on | one hand the number of additional common shares that would have been outstanding if all stock options outstanding at year-end had been exercised and on other hand the conversion or the exchange of OCEANE bonds in shares "A". In the particular case whereas the options, the conversions or the exchanges show a net income per share higher than the one calculated with the average number of shares during the exercise, the effects of options, conversions and exchanges are not taken into account and the diluted income presented is equal to the basic income. |
Reconciliation of basic and diluted earnings per common share "A":
(in millions of euros, except earnings | 2002 | 2001 | 2000 | |||||||||||||||
per share, in euros) | ||||||||||||||||||
Net Income (numerator) | Average Number of Shares (denominator) | Earnings per Share (Restated) | Net Income (numerator) | Average Number of Shares (denominator) | Earnings per Share (Restated) | Net Income (numerator) (Restated) | Average Number of Shares (denominator) | Earnings per Shares (Restated) | ||||||||||
Net Income | (55) | 234 | 318 | |||||||||||||||
Preferred dividend | (2) | (1) | (1) | |||||||||||||||
Basic income available | ||||||||||||||||||
to common shareholders | (57) | 78,520,814 | (0.72) | 233 | 79,058,594 | 2.94 | 317 | 80,272,151 | 3.94 | |||||||||
Effect of dilutive stock options (a) | - | - | 608,669 | 456,969 | ||||||||||||||
Amortization of OCEANE | (b) | |||||||||||||||||
bonds reimbursement premium | ||||||||||||||||||
Diluted income available | ||||||||||||||||||
to common shareholders | (57) | 78,520,814 | (0.72) | 233 | 79,667,263 | 2.92 | 317 | 80,729,120 | 3.92 | |||||||||
(a) The number of additional common shares that would have been outstanding if all stock options outstanding at year-end had been exercised is computed using the treasury stock method. This method assumes that the proceeds upon exercise are used exclusively to repurchase Pechiney common shares, at the average market price during the period, reducing the number of shares to be added to outstanding common shares in computing diluted earnings per share. (b) The effects of options, conversions and exchanges are not taken into account in 2002 because they are antidilutive. |
Preferred Shares "B" Computation of basic and diluted earnings per share: basic and diluted net income (loss) per preferred share "B" are computed by adding the | preferred dividend of 9.5% of par value per preferred share "B" to basic and diluted net income (loss) per common share "A". |
Basic and diluted earnings per preferred share "B": | |||||
(in euros) | 2002 | 2001 | 2000 | ||
(Restated) | (Restated) | (Restated) | |||
Basic earnings | 0.73 | 4.39 | 5.39 | ||
Diluted earnings | 0.73 | 4.37 | 5.37 | ||
Note 13 - Minority Interests | ||||||
(in millions of euros, as of December 31) | 2002 | 2001 | 2000 | |||
Beginning of period | 169 | 169 | 153 | |||
- dividends paid to minority shareholders | (21) | (23) | (6) | |||
- minority interests in net income of consolidated subsidiaries | - | 28 | 31 | |||
- minority interests' change in ownership interest | 3 | (6) | (18) | |||
- translation adjustment | (2) | 1 | 9 | |||
End of period | 149 | 169 | 169 | |||
Note 14 - Other Long-Term Liabilities | ||||||
(in millions of euros, as of December 31) | 2002 | 2001 | 2000 | |||
Liabilities for pensions and similar obligations | 595 | 518 | 463 | |||
Liabilities for postretirement benefits other than pensions | 420 | 499 | 487 | |||
Reserve for restructuring expense | 3 | 5 | 10 | |||
Reserve for environmental expense | 54 | 54 | 71 | |||
Other non-current liabilities | 70 | 53 | 48 | |||
1,142 | 1,129 | 1,079 | ||||
a) Activity in Long-Term Liabilities (including Short Term portion)
Balance at beginning | Increase | Decrease | Other changes | Balance at end of year | |||||||||||||||
Long | Short | Total | Charge | Amount | Amount | Long | Short | Total | |||||||||||
Term | Term | to income | used | released to income | Term | Term | |||||||||||||
Liabilities for pensions and similar obligations | 518 | 34 | 552 | 78 | (54) | 58 | 595 | 39 | 634 | ||||||||||
liabilities for postretirement benefits other than pensions | 499 | 48 | 547 | 52 | (49) | (85) | 420 | 45 | 465 | ||||||||||
Reserve for restructuring expense | 5 | 45 | 50 | 36 | (32) | (1) | (7) | 3 | 43 | 46 | |||||||||
Reserve for environmental expense | 54 | 22 | 76 | 34 | (14) | (6) | (13) | 54 | 23 | 77 | |||||||||
Other non-current liabilities | 53 | 46 | 99 | 21 | (14) | (10) | 2 | 70 | 28 | 98 | |||||||||
Total | 1,129 | 195 | 1,324 | 221 | (163) | (17) | (45) | 1,142 | 178 | 1,320 | |||||||||
Change in provisions for pensions and similar obligations and for postretirement benefits other than pensions reported under "other changes" include translation adjustments related to North American subsidiaries. |
b) Liabilities for Pensions and similar obligations and Postretirement Benefits Other than Pensions
The obligations of the Group with respect to pensions relate principally to defined benefit pension plans covering certain employees of French companies who joined the Group prior to January 1, 1973 and substantially all employees of North American companies. The obligations of the Group that are similar to pensions relate principally to lump sum indemnities payable to employees of French companies upon retirement. Pension benefits and similar obligations are based on formulas, which generally take into account length of service, job grade and compensation. Pension plans are generally funded, except for those of French companies, which are not funded. Annual contributions to the defined benefit pension plans | are at least equal to the minimum funding requirements under local laws and regulations. Retirement indemnities and similar schemes are not funded. The Group's North American subsidiaries provide healthcare and life insurance benefits to retired employees based on age and length of service. The cost of these schemes is directly assumed by the related companies and is not funded. Generally, healthcare benefits represent a percentage of costs incurred after deductibles and other reimbursements. The changes in benefit obligations and in the fair value of plan assets in 2002 and 2001, and the net amounts recognized in the balance sheet as of December 31, 2002 and 2001 are as follows: |
(in millions of euros, as of December 31) | Pensions and Similar Obligations | Other Postretirement Benefits | |||||
2002 | 2001 | 2002 | 2001 | ||||
Change in benefit obligation | |||||||
- benefit obligation at beginning of year | 806 | 739 | 611 | 521 | |||
- service cost | 31 | 26 | 8 | 6 | |||
- interest cost | 50 | 48 | 42 | 40 | |||
- plan amendements | 4 | 1 | (3) | (7) | |||
- plan participants' contributions | - | - | - | - | |||
- actuarial loss | 51 | 28 | 80 | 72 | |||
- acquisitions (divestitures | 52 | 6 | - | - | |||
- translation adjustment | (46) | 12 | (105) | 29 | |||
- benefits paid | (61) | (54) | (49) | (50) | |||
Benefit obligation at end of year | 887 | 806 | 584 | 611 | |||
Change in plan assets | |||||||
- fair value of plan assets at beginning of year | 209 | 210 | - | - | |||
- actual return on plan assets | (19) | (6) | - | - | |||
- plan participants' contributions | - | - | - | - | |||
- employer's contribution | 59 | 47 | 49 | 50 | |||
- acquisitions (divestitures) | 34 | - | - | - | |||
- translation adjustment | (31) | 12 | - | - | |||
- benefits paid | (61) | (54) | (49) | (50) | |||
Fair value of plan assets at end of year | 191 | 209 | - | - | |||
Funded status | (696) | (597) | (584) | (611) | |||
- unrecognized actuarial loss | 292 | 245 | 135 | 79 | |||
- unrecognized prior service cost and transition (asset) obligation | 3 | 3 | (16) | (15) | |||
Net amount recognized | (401) | (349) | (465) | (547) | |||
Amounts recognized in the statement of financial position consist of: | |||||||
- prepaid benefit cost | 7 | 12 | - | - | |||
- accrued benefit liability (*) (**) | (634) | (552) | (465) | (547) | |||
- other intangible assets | 4 | - | - | - | |||
- other long-term asset (**) (gross amount) | 222 | 191 | - | - | |||
Net amount recognized | (401) | (349) | (465) | (547) | |||
(*)Current portion included in this amount: | (39) | (34) | (45) | (48) | |||
(**)The accrued pension liability recognized in the balance sheet included an amount of € 222 million (€ 191 million as of December 31, 2001) representing the additional amount required to recognize the minimum liability which is defined by SFAS 87 as the excess of the accumulated benefit obligation over the fair value of the plan assets. The changes of this additional amount, which are mainly linked to the fluctuation in the return of plan assets, do not impact the income statement; the counterpart of this additional amount, net of tax, is registered in "other long-term assets" (see note 9). |
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were € 887 million, € 825 million and € 191 million, respectively, as of December 31, 2002 and € 806 million, | € 739 million and € 209 million, respectively, as of December 31, 2001. The components of the net pensions and similar obligations cost and of the healthcare and life insurance cost are as follows:
|
(in millions of euros, as of December 31) | Pensions and Similar Obligations | Other Postretirement Benefits | |||||||||
2002 | 2001 | 2000 | 2002 | 2001 | 2000 | ||||||
Components of cost | |||||||||||
Service cost | 31 | 26 | 25 | 8 | 6 | 5 | |||||
Interest cost | 50 | 48 | 46 | 42 | 40 | 38 | |||||
Expected return on plan assets | (18) | (20) | (20) | - | - | - | |||||
Net amortization | 15 | 3 | 4 | 2 | (2) | (3) | |||||
Net periodic benefit cost | 78 | 57 | 55 | 52 | 44 | 40 | |||||
For pension and similar obligations benefits, amortization is based upon the average remaining service period of covered employees. | Assumptions used to determine the benefit obligations and costs are as follows: |
Pensions and Similar Obligations | Other Postretirement Benefits | ||||||
Weighted-average assumptions | |||||||
2002 | 2001 | 2002 | 2001 | ||||
Discount rate: | |||||||
- Projected Benefit Obligation | 6.03% | 6.25% | 6.74% | 7.25% | |||
- Interest cost | 6.15% | 6.54% | 7.07% | 7.25% | |||
Expected rate of increase in compensation levels | 3.42% | 3.51% | 5.00% | 5.00% | |||
Expected rate of return on plan assets | 9.06% | 9.42% | - | - | |||
The assumed health care cost trend rate in 2002 was 8.01 percent for pre-65 retirees and 7.21 percent for post-65 retirees. These rates are expected to decline to ultimate trend rates of 6.0 percent and 5.0 percent, respectively, by the year 2006 and remain at those levels thereafter. | Assumed health care trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rate would have the following effects: |
One-Percentage- | One-Percentage- | ||
(in millions of euros) | Point Increase | Point Decrease | |
Effect on total of service and interest cost components | 2 | (1) | |
Effect on postretirement benefit obligation | 35 | (32) | |
c) Reserve for restructuring expense | |||||
(in millions of euros, as of December 31) | 2002 | 2001 | 2000 | ||
Long-term portion | 3 | 5 | 10 | ||
Current portion | 43 | 45 | 25 | ||
Total | 46 | 50 | 35 | ||
The activity in the restructuring reserve for the years ended December 31, 2002, 2001 and 2000 was as follows:
(in millions of euros) | Employee termination and severance programs | Other exit costs | Total | ||
As of January 1, 2000 | 58 | 8 | 66 | ||
Charge to income | 14 | 1 | 15 | ||
Cash expenditure | (44) | (3) | (47) | ||
Other | 1 | - | 1 | ||
As of December 31, 2000 | 29 | 6 | 35 | ||
Charge to income | 27 | 26 | 53 | ||
Cash expenditure | (21) | (12) | (33) | ||
Other | - | (5) | (5) | ||
As of December 31, 2001 | 35 | 15 | 50 | ||
Charge to income | 35 | 1 | 36 | ||
Cash expenditure | (21) | (11) | (32) | ||
Other | (8) | - | 8) | ||
As of December 31, 2002 | 41 | 5 | 46 | ||
Expected cash payments for restructuring costs in future periods are as follows:
(in millions of euros) | ||
2003 | 43 | |
2004 | 2 | |
2005 | 1 | |
Total | 46 | |
As of December 31, 2002, restructuring reserves are primarily comprised of amounts related to plans initiated in 2002 (€ 22 million) and in 2001 (€16 million). Restructuring plans initiated in 2002 mainly concern redundancy schemes at Pechiney Rolled Products, Pechiney Aviatube, Pechiney Aviatube Ltd (Aluminum Conversion segment), Pechiney Electrométallurgie (Ferroalloys and Other segment) and Decoplast (Packaging segment). Collectively, they target the termination of 870 positions. Under these programs 319 positions were terminated at the end of 2002. | Restructuring plans initiated in 2001 concerned mainly the cessation of the primary magnesium primary activity (Ferroalloys and Other segment) and globally targeted the termination of 531 positions. Under these plans 388 positions were terminated at the end of 2002. |
d) Reserve for environmental expense
Laws and regulations expose the Group to the risk of substantial environmental costs and liabilities, including liabilities associated with past activities. The Group is involved in judicial and administrative proceedings concerning environmental compliance and the remediation of contamination at Group properties and other sites. The Group also has contractually undertaken to indemnify certain purchasers of the Group's divested assets for certain environmental liabilities associated with those assets. | The related charges are reserved for when these liabilities can be reasonably estimated. The types of costs accrued are expenditures for clean up of environmental contamination and other remediation activities. The estimated reserves are based on current environmental laws and regulatory requirements and currently available technology. The accrued costs do not include potential recoveries from insurers and have not been discounted to their present value. |
The environmental reserves are as follows: | |||||
in millions of euros, as of December 31) | 2002 | 2001 | 2000 | ||
Long-term portion | 54 | 54 | 71 | ||
Current portion | 23 | 22 | 15 | ||
Total | 77 | 76 | 86 | ||
Most of these environmental reserves are associated with the remediation of former waste disposal sites used by the Group in the past, primarily in the United States. The Group is a responsible party at the majority of these sites. The Group is also involved in several remediation matters in France, mainly relating to waste disposal sites. As of the end of 2002, about 80 sites are concerned. The precision and reliability of the loss estimates vary from site to site, depending on such factors as the quantity of data concerning contamination at the site, the extent to which remediation requirements have been identified or agreed upon with regulatory authorities and the availability and likelihood of contributions from other responsible parties. The Group believes that the amount it has reserved will enable it to satisfy its known and anticipated | environmental liabilities to the extent they can be estimated. In addition, the Group is not aware of environmental matters for which a material loss to the Group, beyond the existing reserves, could currently be considered reasonably possible. Because environmental matters cannot be predicted with certainty, there can be no assurance that the reserves will be adequate for all purposes. In addition, the discovery of new sites or future developments at known sites, such as changes in law or environmental conditions, could result in increased environmental costs and liabilities in excess of accrued environmental reserves that could have a material effect on the Group's results of operations in any given year or its consolidated financial position, although the amount of such increases cannot be estimated. |
e) Other non-current liabilities
The increase of the non-current liabilities between 2001 and 2002 is due to the consolidation in 2002 of Sofiri, a captive insurance company. Life insurance and claim reserves of this company amount to € 23 million at the end of 2002. |
Note 15 - Debt (Restated) | ||||||
(in millions of euros, as of December 31) | 2002 | 2001 | 2000 | |||
(Restated) | ||||||
Bonds | 916 | 314 | 313 | |||
Other long-term debt | 549 | 657 | 421 | |||
Long-term debt | 1,465 | 971 | 734 | |||
Current portion | 39 | 37 | 31 | |||
Total | 1,504 | 1,008 | 765 | |||
Including capital lease obligations | 4 | 5 | 4 | |||
Short-term bank loans | 390 | 912 | 594 | |||
As of December 31, 2002, total net indebtedness amounted to € 1,437 million (€ 1,473 million and € 869 million as of December 31, 2001 and 2000, respectively) after deducting cash in the amount of 283 million (€ 322 million and € 377 million as of December 31, 2001 and 2000, | respectively) and marketable securities in the amount of € 153 million (€ 113 million and € 86 million as of December 31, 2001 and 2000, respectively) and including other financial liabilities and receivables. |
Maturity of Debt | ||||||
(in millions of euros, as of December 31) | 2002 | 2001 | 2000 | |||
In 1 year | 39 | 37 | 31 | |||
In 2 years | 219 | 71 | 26 | |||
In 3 years | 304 | 300 | 67 | |||
In 4 years | 130 | 299 | 311 | |||
In 5 years | 617 | 85 | 296 | |||
More than five years | 195 | 216 | 34 | |||
1,504 | 1,008 | 765 | ||||
Breakdown of Long-Term Debt by Major Currency (Excluding Current Portion) | ||||||
(in millions of euros, as of December 31) | 2002 | 2001 | 2000 | |||
Euros | 1,203 | 618 | 436 | |||
U.S. dollars | 260 | 350 | 296 | |||
Other currencies | 2 | 3 | 2 | |||
1,465 | 971 | 734 | ||||
Individually Significant Long-Term Loans as of December 31, 2002 | ||||||
(in millions of euros) | Interest rate | Maturity | Nominal Value | 2002 | ||
Pechiney | ||||||
Bonds | 5.10% | 2005 | (1,500 M. FRF) | 229 | ||
Equity link bonds | (*)Pechiney share | 2005 | (350 M. FRF) | 53 | ||
Convertible bonds | (**)3.25% | 2007 | (595 M. EUR) | 604 | ||
Private placement | 5.10% | 2003 | (200 M. FRF) | 10 | ||
Private placement | EURIBOR | (***)2006 | (260 M. FRF) | 40 | ||
Private placement | EURIBOR | 2005 | (80 M. FRF) | 8 | ||
Private placement | EURIBOR | 2008 | (183 M. EUR) | 183 | ||
Pechiney Pacific | ||||||
Line of credit | LIBOR | 2004 | (185 M. USD) | 176 | ||
Line of credit | LIBOR | 2006 | (110 M. USD) | 74 | ||
Aluminium Pechiney SPV | ||||||
Lines of credit | LIBOR | 2013 | (110 M. USD) | 9 | ||
Other | ||||||
Other long-term loans | 79 | |||||
Current portion of long-term loans | 39 | |||||
Total long-term debt (including current portion) | 1,504 | |||||
(*) | Swap against index EURIBOR. |
(**) | Gross annual yield 3.25%, redemption premium 10.05% of the nominal value (amortized over the life of the bonds, see Note 20c). |
(***) | Maturity in 2003, extendable until 2006 on option. Interest on short-term debt is based on monetary indexes such as EURIBOR, LIBOR or spot rate, depending on the currency and debt instrument. As of December 31, 2002, the Group has available outstanding and unused long-term lines of credit amounting to € 821 million. The information relating to financial instruments and to the market value of the debt is provided in Note 19. |
The information relating to guarantees on indebtedness is provided in Note 20.
Note 16 - Financial Expense | ||||||
(in millions of euros, year ended December 31) | 2002 | 2001 | 2000 | |||
Financial expense: | ||||||
- interest on long-term debt | (52) | (49) | (66) | |||
- interest on short-term debt | (26) | (48) | (44) | |||
- interest on the sale of receivables | (5) | (8) | (9) | |||
- exchange loss | (8) | (4) | (12) | |||
- capitalized interest | 3 | 3 | 2 | |||
- other expense | (4) | (6) | (5) | |||
(92) | (112) | (134) | ||||
Financial income: | ||||||
- interest on long-term loans | 5 | 11 | 6 | |||
- revenue from marketable securities | 4 | - | 3 | |||
- exchange gain | 15 | 7 | 9 | |||
- short-term financial income | 16 | 25 | 47 | |||
- other income | 3 | 1 | 1 | |||
43 | 44 | 66 | ||||
Financial expense, net | (49) | (68) | (68) | |||
Note 17 - Other (Expense) Income (Restated) | ||||||
Other income and expense for the years ended December 31, 2002, 2001 and 2000 includes the following: | ||||||
(in millions of euros, year ended December 31) | 2002 | 2001 | 2000 | |||
(Restated) | (Restated) | (Restated) | ||||
Gain (loss) on divestitures and writedowns of financial assets | (80) | (12) | 7 | |||
Expenses relating to retirees | (26) | (27) | (23) | |||
Other | 3 | 49 | 8 | |||
(103) | 10 | (8) | ||||
In 2002: | In 2001: In 2000: |
Note 18 - Income Taxes
(in millions of euros, year ended December 31) | 2002 | 2001 | 2000 | ||
Current income taxes | (64) | (106) | (157) | ||
Deferred income taxes | 28 | (18) | (9) | ||
(36) | (124) | (166) | |||
Withholding taxes | (3) | (6) | (6) | ||
(39) | (130) | (172) | |||
a) Effective Tax Rate
Since 2002, the effective tax rate calculated on the basis of income before goodwill amortization and writedowns. A pro-forma effective tax rate has been calculated for the previous periods. | The difference between the effective tax rate and the enacted tax rate applicable in France is as follows: |
2002 | 2001 | 2000 | |||
(Restated) | (Restated) | (Restated) | |||
Enacted tax rate | 35.43% | 36.43% | 37.76% | ||
Effect of foreign tax rates differential | (9.20%) | (4.20%) | (3.60%) | ||
Permanent différences | (12.90%) | (3.35%) | (6.80%) | ||
Taxes at lower rates | (14.30%) | 1.17% | (0.40%) | ||
Change in valuation allowance | 14.20% | 1.92% | 2.40% | ||
Other | (7.90%) | (3.28%) | 0.60% | ||
Withholding taxes | 2.30% | 1.70% | 1.00% | ||
Effective tax rate | 36.23% | 30.43% | 30.96% | ||
b) Deferred Income Tax | |||||
Deferred income taxes are reported in the consolidated balance sheet as follows: |
(in millions of euros, as of December 31) | 2002 | 2001 | 2000 | |||
Deferred income tax assets | - long term | 505 | 335 | 331 | ||
- short term | 51 | 60 | 53 | |||
Deferred income tax liabilities | - long term | (195) | (173) | (93) | ||
- short term(*) | (10) | (7) | (7) | |||
Net deferred income taxes assets | 351 | 215 | 284 | |||
(*) included in "Other payables and accrued liabilities" in the Consolidated Balance Sheet. |
Deferred income taxes include the following components: | ||||||
(in millions of euros, as of December 31) | 2002 | 2001 | 2000 | |||
Temporary differences - assets | ||||||
Depreciation and amortization | 51 | 33 | 16 | |||
Employee benefits liabilities | 409 | 418 | 386 | |||
Restructuring reserves | 13 | 23 | 4 | |||
Others | 115 | 108 | 101 | |||
Total | 588 | 582 | 507 | |||
Net operating losses | 679 | 641 | 660 | |||
Less valuation allowance | (459) | (525) | (536) | |||
Total assets, net of valuation allowance | 808 | 698 | 631 | |||
Temporary differences - liabilities | ||||||
Depreciation and amortization | 313 | 337 | 218 | |||
Capitalized interest | 12 | 14 | 5 | |||
Regulated reserves | 48 | 48 | 41 | |||
Inventory | 21 | 23 | 25 | |||
Unremitted reserves | 7 | 8 | 4 | |||
Tax reserves | 17 | 15 | 11 | |||
Others | 39 | 38 | 43 | |||
Total liabilities | 457 | 483 | 347 | |||
Net deferred income tax asset | 351 | 215 | 284 | |||
The valuation allowance relates to net operating losses carried forward and other deferred tax assets which more likely than not will not be realized. At December 31, 2000, 2001, and 2002 valuation allowances relating to loss carryforwards of French companies continue to represent the majority | of the total allowance. They relate to loss carryforwards exceeding the probable taxable income during the carryforward period and to those carryforwards with no expiry date which are subject to limitations to their use such that it is unlikely that they will be used against taxable income. |
Note 19 - Financial Instruments linked to financial and metal risk management
a) Financial Instruments Used
The Group uses various financial instruments to reduce its exposure to fluctuations in currency values and interest rates. The majority of the financial instruments used are over-the-counter instruments that are sufficiently standard and liquid to be considered similar to instruments commonly traded on organized financial markets: | The Group does not use financial instruments with leverage features. Accordingly, the notional amount of the contracts is the proper measure for determining the effect of possible fluctuations in the foreign exchange or interest rate markets. The Group does not engage in the trading of foreign exchange and interest rate instruments except for certain limited arbitrage transactions in the foreign exchange markets. These arbitrage transactions are exclusively performed on spot and forward foreign exchange markets or through options strategies. These operations are carried out, within predetermined limits, in order to optimize the management of the Group's |
centralized hedging operations. These transactions are entered into exclusively on currencies commonly used by the Group. As a result of the predetermined limits, net open positions resulting from arbitrage operations are not material. As arbitrage transactions are not hedges, | positions are marked to market and unrealized gains and losses are immediately recorded in income, within the caption Financial expense, net. |
b) Hedging of Currency Risks
Hedging operations are centralized at the parent company for all subsidiaries when permitted by local regulations and by administrative management constraints. The main material exception to this principle is Pechiney Japon K.K.. All hedging is performed using instruments quoted on organized markets or over-the-counter transactions that are similar to instruments traded on organized markets. The Group policy is to systematically hedge risks associated with firm commercial transactions. As an exception to this rule, for certain exposures where the amount and maturity are known, the Group may decide either not to hedge certain specific risks, or to hedge certain transactions which are anticipated but not yet committed. Foreign exchange instruments are utilized to hedge commercial purchase and sale contracts of Group subsidiaries, as soon as such contracts are entered into, as foreign exchange exposure arises at that time. Accordingly, foreign exchange instruments generally hedge trade payables and trade receivables denominated in foreign currencies and contracted but unbilled purchases and sales denominated in foreign currencies. Exchange gains and losses related to operating activities are recorded in Income from operations, principally in Net sales and Cost of goods sold. Gains and losses related to financial activities are recorded in Financial expense, net. Portfolio of Foreign Exchange Instruments As of December 31, 2002, the foreign exchange instruments portfolio consisted primarily of hedging purchases of raw materials and sales of aluminum, semi-fabricated and fabricated products by the French | companies in the aluminum activities (€ 545 million equivalent of export hedges - forward sales - and € 814 million equivalent of import hedges -forward purchases). As of December 31, 2002, the foreign exchange instruments portfolio also included foreign exchange contracts granted to affiliates (€ 14 million equivalent of forward purchases and € 8 million equivalent of forward sales) and hedging contracts which are now external to the Group (€ 22 million equivalent of forward purchase, exchange contract assumed by Rexam in connection with the sale of ANC) as well as the related hedging contracts with banks. Foreign exchange instruments (currency swaps) are also used to convert debt instruments issued in euros into U.S. dollars, primarily in order to refinance U.S. based operations; as of December 31, 2002, these hedging foreign exchange instruments amounted to € 495 million. The open options portfolio as of December 31, 2002 consisted primarily of: |
The portfolio of foreign exchange instruments at year end was as follows:
(in millions of euros) | 2002 | 2001 | 2000 | |||
Notional amount | ||||||
Forward puritanismes | 700 | 741 | 889 | |||
Forward sales | 1,489 | 1,828 | 1,634 | |||
Options puritanisme | 473 | 972 | 604 | |||
Options written | 440 | 949 | 539 | |||
Gains or losses with respect to foreign exchange instruments are described in paragraph (f) below.
The foreign exchange positions as of December 31, 2002 by major currency were as follows (foreign currency amounts are translated at December 31, 2002 exchange rates):
(in millions of euros) | Forward Purchases | Forward Sales | ||
U.S. dollar | 561 | 1,326 | ||
Pound Sterling | 24 | 106 | ||
Japanese yen | 1 | 13 | ||
Other | 114 | 44 | ||
Total | 700 | 1,489 | ||
As of December 31, 2002, currency instruments with a term longer than one year but shorter than 6 years represent an amount of € 69 million for forward purchases, € 202 million for forward sales. |
c) Hedging of Interest Rate Risks
The interest rate risks of the Group are managed centrally by the parent company to the extent permitted by local laws. All hedging is performed using over-the-counter instruments that are similar to instruments traded on organized markets. Most of the Group's long-term debt bears interest at variable rates. This results in exposure to fluctuations in the interest rate markets, which the Group reduces through the use of interest rate instruments. The Group policy is to use these instruments to fix or to limit the fluctuations of a portion of the interest expense on its variable rate debt: | Premiums paid or received related to cap transactions or swaptions and amounts receivable and payable related to swap transactions are recorded in Financial expense concurrently with the interest expense on the underlying debt. Interest rate instruments are essentially used to hedge long-term debt, which bears interest at rates indexed on LIBOR, STIBOR and EURIBOR. Portfolio of Interest Rate Instruments The following tables set forth for each period presented and for each category of interest rate instrument used by the Group, the notional amount, maturity and average rate. The average rate for caps represents the average ceiling rate. The average rate for swaps and swaptions represents the average guaranteed fixed rate. These instruments are used to hedge a portion of the debt bearing interest at variable rates and denominated in euros and U.S. dollars. |
(in millions of euros) | Notional Amount | Maturity | Average rate | |||
< 1 year | 1 - 7 years | |||||
As of December 31, 2002 | ||||||
Interest Rate swap - Fixed rate debt: | ||||||
- in EUR Fixed to EURIBOR | 114 | - | 114 | 4.4% | ||
- in USD Fixed to LIBOR | 270 | 195 | 75 | 2.38% | ||
Interest Rate swap - Capped rate debt: | ||||||
- in EUR EURIBOR to capped EURIBOR | 138 | - | 138 | 6.13% | ||
Interest Rate swap -Fixed rate debt: | ||||||
- in EUR Fixed to EURIBOR | 311 | - | 311 | 4.77% | ||
Interest Rate swap -Capped rate debt: | ||||||
- in EUR EURIBOR to capped EURIBOR | 45 | - | 45 | 6% | ||
Caps purchases: | ||||||
- in EUR Fixed to PIBOR | 152 | 152 | - | 4.88% | ||
Currency interest rate swaps: | ||||||
- in EUR / SEK for EURIBOR / STIBOR | 15 | - | 15 | - | ||
As of December 31, 2001 | ||||||
Interest Rate swap - Fixed rate debt: | ||||||
- in EUR Fixed to EURIBOR | 114 | - | 114 | 4.4% | ||
Interest Rate swap - Capped rate debt: | ||||||
- in EUR EURIBOR to capped EURIBOR | 138 | - | 138 | 6.01% | ||
Interest Rate swap -Fixed rate debt: | ||||||
- in EUR Fixed to EURIBOR | 311 | - | 311 | 4.77% | ||
- in EUR Fixed to CMS | 45 | - | 45 | 4.25% | ||
Interest Rate swap -Capped rate debt: | ||||||
- in EUR EURIBOR to capped EURIBOR | 45 | - | 45 | 6% | ||
Caps purchases: | ||||||
- in EUR Fixed to PIBOR | 152 | - | 152 | 4.88% | ||
- in USD Fixed to LIBOR | 238 | 238 | - | 7.5% | ||
Caps sales: | ||||||
- in USD Fixed to LIBOR | 238 | 238 | - | 7.5% | ||
Currency interest rate swaps: | ||||||
- in EUR / SEK for EURIBOR / STIBOR | 15 | - | 15 | - | ||
As of December 31, 2000 | ||||||
Interest Rate swap - Fixed rate debt: | ||||||
- in FRF / EUR Fixed to EURIBOR | 152 | 38 | 114 | 4.31% | ||
Interest Rate swap -Variable rate debt | ||||||
- in FRF / EUR Fixed to EURIBOR | 311 | - | 311 | 4.77% | ||
- in FRF / EUR Fixed to CMS | 45 | - | 45 | 4.25% | ||
Caps purchases: | ||||||
- in FRF Fixed to PIBOR | 400 | 248 | 152 | 4.71% | ||
- in USD Fixed to LIBOR | 290 | 64 | 226 | 7.5% | ||
Caps sales: | ||||||
- in FRF Fixed to PIBOR | 8 | 8 | - | 5% | ||
- in USD Fixed to LIBOR | 290 | 64 | 226 | 7.5% | ||
Currency interest rate swaps | ||||||
- in EUR / SEK for EURIBOR / LIBOR | 15 | - | 15 | - | ||
There are no interest rate instruments with a maturity longer than seven years.
d) Metal Commitments
Industrial divisions In order to reduce its exposure to price fluctuations of certain metals (principally aluminum), the Group uses the following instruments traded on the London Metal Exchange (LME) or New York Commodity Exchange (COMEX): purchase and sales contracts, purchased options or option hedging strategies. These transactions allow the Group's industrial companies to fix the future prices of purchasing raw materials or the margin levels or to limit to a determined level the effect of future price fluctuations on these prices or margin levels. The Group has been applying, for its subsidiaries which produce aluminum, a policy designed to take advantage of the increases in aluminum prices and excluding any locking-in of sales prices for medium or long-term periods, and on a case by case basis protecting itself against a decrease in prices below a pre-determined level by purchasing put options. Gains and losses on forward metal contracts and options which serve to hedge metal price exposures within industrial subsidiaries are recorded in the same manner and period as the gains and losses on the hedged transactions. In accordance with the Group's risk management policies, | instruments which reduce the exposure to fluctuations in the price of metal and are designated as hedges of the exposed items are accounted for as hedges. Futures and options contracts are only entered into with creditworthy counterparties and up to predetermined limits for any one counterparty, so as to limit credit risks. Market risks arise from the volatility of the aluminum market, which can result in significant fluctuations in the market value of hedge instruments. The effect of these fluctuations on future purchases and sales of aluminum should approximately offset the effect on the market value of the hedging instruments. International Trade division For the subsidiaries in the International Trade division, which trade both internally with the Group's industrial subsidiaries and with third parties, commodity instruments are essentially used as hedges in order to fix a profit margin on their operations. These hedges, determined either specifically or globally, are made on firm commitments. At the end of each period, the original values of all open contracts are marked to market. For metals which are not traded on organized markets (mainly alumina), unrealized gains are not recorded. |
The revenues of the agency and trading activities (and of brokerage activities until February 2000) are recorded as follows:
(in millions of euros, for the year ended december 31) | 2002 | 2001 | 2000 | |||
Purchase for resale net revenue(*) | 138 | 112 | 138 | |||
Commission and brokerage income | 24 | 21 | 17 | |||
(*) Net sales less Cost of goods sold. |
The division limits the credit risks associated with trading and brokerage activities by dealing only with highly rated counterparties, by limiting its maximum exposure to any single counterparty and by spreading its risks among a large number of counterparties. The market risks of the trading activities result from potential fluctuations in the market price of metals, possible mismatches in the timing of long and short positions, and potential changes in the premiums or discounts applicable to specific markets. The market risk associated with the brokerage activities is generally limited to a one day risk and there is little long-term exposure. The market risks of both the trading and brokerage activities are subject to strict | policies and controls, including risk limits. The brokerage activity is also subject to the regulatory control of the U.K. Securities and Futures Authority (SFA). Open positions as of December 31, 2002 As of December 31, 2002, hedging instruments for aluminium have a fair value of € (11) million whereas hedging instruments for other metals have a fair value of € 1 million. Fair value represents unrealized hedging gains (losses) deferred at the year end. These deferred gains (losses) are expected to offset the effects of price fluctuations on sales and purchases of metal. |
e) Counterparty Risk and Market Risk The potential counterparty risks to the Group are concentrated in the following areas: The client risk, which is managed by each subsidiary, is limited due to the large number of clients spread among many industrial sectors and geographic locations. | Excess cash generated by subsidiaries is remitted to the parent Company when permitted by local regulations. These funds are invested in money market or mutual funds. All off balance sheet financial instruments are entered into with highly rated financial institutions. Accordingly, the Group does not believe that non-performance by a counterparty would have a significant impact on its financial position. As the Group uses financial instruments to hedge its interest rate and foreign exchange exposures, the Group believes the market risk with respect to such instruments is not material. |
f) Market Value of Financial Instruments
The table below summarizes the book and market values of the financial instruments used by the Group as of December 31, 2002, 2001 and 2000.
2002 | 2001 | 2000 | |||||||||
(in millions of euros) | |||||||||||
Net Book value | Market value | Net book value | Market value | Net book value | Market value | ||||||
Investments in equity affiliates | 285 | 285 | 297 | 297 | 261 | 261 | |||||
Long-term investments | 139 | 139 | 141 | 141 | 149 | 149 | |||||
Long-term loans | 49 | 49 | 55 | 55 | 60 | 60 | |||||
Accounts receivable - trade (Restated) | 1,281 | 1,281 | 1,466 | 1,466 | 1,500 | 1,500 | |||||
Marketable securities | 153 | 153 | 113 | 113 | 86 | 86 | |||||
Cash (Restated) | 283 | 283 | 332 | 332 | 377 | 377 | |||||
Liabilities | |||||||||||
Long-term debt | |||||||||||
(including current portion) | 1,504 | 1,463 | 1,008 | 1,002 | 765 | 757 | |||||
Accounts payable - trade | 1,456 | 1,456 | 1,504 | 1,504 | 1,503 | 1,503 | |||||
Short-term bank loans | 390 | 390 | 912 | 912 | 594 | 594 | |||||
Off balance sheet | |||||||||||
Interest rate instruments | 11 | 0 | 0 | ||||||||
Currency instruments | 59 | (3) | 23 | ||||||||
The market value of equity affiliates and long-term investments was determined using stock exchange values for listed companies, equity values for non-listed equity affiliates and, for non-listed investments, the net book values, which approximate the market values. The market value of long-term fixed rate debt and of significant long-term loans was determined item by item, using values communicated either by the agent bank or estimated by the Group on the basis of discounted future cash flows, using rates and conditions prevailing at the end of each period. The market value for cash and cash equivalents and for all current assets and liabilities (Accounts Receivable - trade, Marketable Securities, Accounts Payable - Trade and short-term Bank Loans) is considered to be equal to the net book value due to their short-term maturities. | The market value of off balance sheet foreign exchange instruments is determined by reference to the closing rates at the balance sheet date. The banks that are counterparties to currency options and interest rate instruments confirmed the market value of off balance sheet interest rate instruments. In the last two cases, the market value represents what the Group would receive (or pay) to unwind the foreign exchange and interest rate instruments as of the balance sheet date. As these instruments relate essentially to specific hedges, the gain or loss arising from the mark to market on the instrument is offset by the gain or loss on the designated hedged item. |
Note 20 - Commitments and Contingent Liabilities
a) Guarantees provided in the usual course of business
(in millions of euros, as of December 31) | Guarantees | ||||||||
< 1 year | from 1 to 3 years | from 3 to 5 years | > 5 years | Total 2002 | |||||
Receivables sold(1) | 200 | - | - | - | 200 | ||||
Guarantees(2) | 79 | 263 | 194 | 43 | 579 | ||||
Mortgages and liens | - | - | - | - | - | ||||
Total | 279 | 263 | 194 | 43 | 779 | ||||
(1) | The Group has entered into agreements with certain financial institutions to sell up to € 187 million of selected receivables without recourse (€ 199 million in 2001, € 205 million in 2000) and up to € 28 million with recourse (€ 8 million in 2001, € 7 million in 2000). The outstanding receivables sold deducted from the caption "Accounts and notes receivables" amounts to € 200 million in 2002, including € 25 million sold with recourse. |
(2) | Guarantees given mainly relate to loans and credit lines granted to Group companies. |
As of December 31, 2002, debt instruments in the aggregate amount of € 1,165 million, including unused lines of credit, | contained restrictive covenants relating to the maintenance of the consolidated net worth of Pechiney and consolidated debt to equity ratio. |
The following table shows, as of December 31, 2002, the Group's loans and lines of credit for a term exceeding one year, drawn or partially drawn, which are subject to early redemption requirements if the Group fails to maintain certain levels of consolidated net worth or exceeds certain indebtedness ratios:
Rate | Maturity | Maximum | Amount | Consolidated Net | Debt Ratio | ||
Principal Amount | Drawn Down | Worth Requirement | |||||
(€ millions) | |||||||
Pechiney | |||||||
Private Placement | EURIBOR | 2008 | € 183 million | 183 | > € 2,500 million | < 140 % | |
Pechiney Pacific | |||||||
Line of credit | LIBOR | 2004 | US$ 185 million | 176 | > € 1,982 million(1) | - | |
Line of credit | LIBOR | 2006 | US$ 110 million | 74 | > € 2,500 million | - | |
(1) 13 billion French francs
b) Other commitments provided in the usual course of business
Commitments | |||||||||
(in millions of euros, as of December 31) | |||||||||
< 1 year | from 1 to 3 years | from 3 to 5 years | > 5 years | Total 2002 | |||||
Operating leases | 19 | 28 | 17 | 29 | 93 | ||||
Capital expenditures | 66 | 4 | - | - | 70 | ||||
Total | 85 | 32 | 17 | 29 | 163 | ||||
Financial instruments linked to foreign exchange interest, rate and metal exposure are detailed in Note 19.
c) Guarantees and other commitments relating to non-recurring transactions
Amounts | |||||||||
(in millions of euros, as of December 31) | < 1 year | from 1 to 3 years | from 3 to 5 years | > 5 years | Total 2002 | ||||
Contingent guarantees and commitments(*) | |||||||||
OCEANE bonds redemption premium | - | - | 51 | - | 51 | ||||
Earn out clauses | 2 | - | - | - | 2 | ||||
Firm commitments (*) | |||||||||
Bauxilum project | - | 7 | 210 | - | 217 | ||||
Tomago | - | - | 29 | - | 29 | ||||
Total | 2 | 7 | 290 | - | 299 | ||||
(*) Assessed commitments; these commitments, as well as the non-assessable guarantees and other commitments relating to non-recurring transactions, are described hereunder.
OCEANE bonds redemption premium
On April 2002, the Group launched an offering of bonds convertible into new shares and / or exchangeable for existing shares of Pechiney (OCEANE), with a redemption premium. The redemption premium, which amounts to € 60 million, is amortized over the life of the bonds. At the end of December 2002, the unrecognized premium amounts to € 51 million. Except in case of an anticipated repayment decided by Pechiney, these bonds are all redeemable on January 1st, 2007. These bonds can also be exchanged for existing "A" shares of Pechiney, or converted into new "A" shares to be issued by Pechiney, from May 21, 2002 to December 20, 2006. During 2002, no bond has been purchased on the Stock Exchange or redeemed by Pechiney and there was no request for conversion or exchange. Earn out clauses As part of the agreements for the acquisition of certain assets, the Group has agreed to pay additional amounts to the sellers, provided that various conditions are met. The maximum amount which could be paid in respect of these agreements is estimated at € 2 millions, payable in 2003. Bauxilum project In 2001, Aluminium Pechiney SPV, a subsidiary of the Group, entered into a technical, commercial, financial and management support agreement, the Investment and Liquidation Agreement, with CVG Bauxilum ("Bauxilum") a subsidiary of the Venezuelan state holding company Corporacion Venezolana de Guyana. The purpose of this agreement is to modernize Bauxilum's bauxite and alumina production facility so as to increase in a lasting manner its annual production from 1.7 million tons to 2 million tons and to ensure compliance of the installations in environmental matters. Within the framework of this agreement, the Group will provide equipment, technology, technical assistance and other services to Bauxilum for a total value of approximately 228 million dollars (representing € 217 million at December 31, 2002) which shall be financed, on the one hand, by two loans of a maximum amount of 110 million dollars granted by a banking syndicate to Aluminium Pechiney SPV, and for the remainder, by the Group. Reimbursements of the loan amounts shall be carried out through the sale of alumina which shall be off taken by the Group. Taking into account the project's structure, the credit risk incurred by the Group should not exceed an estimated 120 million dollars. Within the framework of this project, it is provided that the Group will deliver several guarantees, in particular as to performance and that it will subcontract, under its responsibility, part of the project. This project also calls for a feasibility study for an extension of the facility so as to allow the increase of alumina production from 2 to 3 million tons. This agreement became effective on December 23, 2002, when the conditions precedent to the closing of the transaction contemplated by the Investment and Liquidation Agreement were completed. | As of December 31, 2002, the financing through the loan agreements was available to Aluminium Pechiney SPV, the expenses incurred by the Group within the framework of the project amounted to € 17 million and drawings on the banking pool loan amounted to € 14 million. Tomago On April 28, 2002, Pechiney and its partners in the Tomago smelter agreed to increase the capacity of the plant. The Pechiney commitment in relation to this project amounts to 34 million Australian dollars (representing € 18 million at December 31, 2002), which could be raised to 53 million Australian dollars (representing € 29 million at December 31, 2002) in case one of the partners uses its right not to participate in the project. Aluminium Dunkerque In June 1990, the Group agreed to take off the whole production of the Dunkerque plant and to finance part of the working capital of the plant. Also pursuant to this agreement, the shareholders of Aluminium Dunkerque other than the Group (representing in the aggregate 65% of its share capital) have the right to put their shares of Aluminium Dunkerque. This put option will be exercisable progressively, beginning September 1 following the date on which 80% of Aluminium Dunkerque's project financing indebtedness is reimbursed which, according to present estimates, will occur in 2003. The put option will then be open for a period of five years. The percentage of put options exercisable each year represents 30% of the shares held by the shareholders of Aluminium Dunkerque other than the Group. As a result of the exercise of these put options, the Group could obtain a majority interest in Aluminium Dunkerque, as early as the first year of the exercise period, thereby requiring the Group to consolidate Aluminium Dunkerque, including the then outstanding project financing indebtedness (which could represent up to 20% of the original amount, or $ 135 million). The purchase price would be the fair market value of the shares as determined each year during the exercise period by independent experts. Corus project Pechiney had reached an agreement in principle with the Anglo-dutch Group Corus on the proposed acquisition of its aluminum conversion activities. The proposed acquisition was rejected by the supervisory board of Corus' Dutch Subsidiary, which decision was upheld by the Amsterdam Enterprise Court on an appeal brought by the management board of Corus Group plc. As a consequence, Corus Group plc is required to pay Pechiney an agreed break-up fee of € 20 million, according to its contractual obligations. Liability guarantees As part of the agreements for the sale of certain investments or assets, the Group has guaranteed the buyers against various risks relating mainly to tax, labor and environmental matters. These guarantees are those usually encountered in such transactions and are, generally, limited in duration and subject to deductible or threshold clauses or capped, depending on assets and liabilities guaranteed. |
d) Obligations and commitments summary
(in millions of euros, as of December 31) | Amounts to be paid | ||||||||
< 1 year | from 1 to 3 years > | from 3 to 5 years > | 5 years | Total 2002 | |||||
Loans (see Note 15) | 39 | 523 | 747 | 195 | 1,504 | ||||
Capital leases | 8 | 18 | 19 | 12 | 57 | ||||
Off balance sheet commitments: | |||||||||
- provided in the usual course of business (see b above) | 85 | 32 | 17 | 29 | 163 | ||||
- non-recurring (see c above) | 2 | 7 | 290 | - | 299 | ||||
Total | 134 | 580 | 1,073 | 236 | 2,023 | ||||
e) Contingent liabilities
Certain Group companies have been subjected to tax audits which are not completed. Management believes that all known litigation involving the Group is | adequately provided for so that liabilities related to such litigation should not materially affect the Group's financial position or results of operations.
|
Note 21 - Related Party Transactions
Significant transactions and balances between the Group and its affiliates as of and for the years ended December 31, 2002, 2001 and 2000 included the following:
(in millions of euros) | 2002 | 2001 | 2000 | ||
Year ended December 31 | |||||
Net sales (Restated) | 158 | 302 | 280 | ||
Purchases (Restated) | 490 | 679 | 610 | ||
As of December 31 | |||||
Accounts receivable - trade, net | 21 | 38 | 55 | ||
Long-term loans (non-current portion) | 33 | 50 | 54 | ||
Financial advances, net | 19 | 38 | 8 | ||
Accounts payable - trade | 91 | 101 | 86 | ||
As of December 31, 2002, Pechiney has entered into exchange and currency option contracts for a total amount of € 366 million with Aluminium Dunkerque and Alucam. These contracts mature in 2003. | The Group also enters into numerous transactions with certain of its main shareholders, notably Assurances Générales de France. |
Note 22 - Segment and Geographic Information
A - OPERATIONAL SEGMENTS
The activities of Pechiney are organized into 17 divisions, each offering specific products and services. The five major operating segments presented below are either divisions or groups of divisions with similar characteristics. The Primary Aluminum division produces aluminum, alumina and bauxite and licenses aluminum related technology. Aluminum Conversion includes the divisions which convert aluminum into laminated or extruded products. Packaging includes the divisions which produce flexible plastic packaging, tubes, aerosols and a large range of other packaging for the food, healthcare and beauty markets. The International Trade division is engaged in metal sales. Ferroalloys and other is mainly comprised of Pechiney Electrométallurgie. | Segment performance is evaluated principally on earnings from operations, which is calculated as income (loss) from operations, less amortization of goodwill, long-lived asset writedowns, restructuring expense and other income (expense). The accounting principles applied in the determination of segment earnings from operations are identical to those described in Note 1 with the exception of the interest cost and return on plan assets relating to the North American defined benefit pension plans and medical and life insurance schemes for the Packaging segment, which are recorded under Holdings. The impact on the Group's operating margin of the elimination of interGroup profit in inventory is recorded in Holdings. Segment assets do not include deferred tax assets of companies included in the French and U.S. tax groups, which are recorded in Holdings. |
Aluminum | ||||||||||||||
Packaging | Ferroalloys | International | Holdings | Total | ||||||||||
(in millions of euros) | Primary | Aluminum | & other | Trade | ||||||||||
Aluminum | Conversion | |||||||||||||
2002 | ||||||||||||||
Net sales | 1,605 | 2,618 | 2,342 | 308 | 5,036 | - | 11,909 | |||||||
Earnings from operations | 276 | 16 | 129 | 3 | 73 | (90) | 407 | |||||||
Restructuring expense, | (145) | |||||||||||||
long-lived asset writedowns | ||||||||||||||
Other income (expense) | (98) | |||||||||||||
Income (loss) from operations | 164 | |||||||||||||
Financial expense, net | (49) | |||||||||||||
Income (loss) before income taxes | 115 | |||||||||||||
Assets | ||||||||||||||
(excluding cash and Marketable securities) | 1,984 | 1,937 | 2,120 | 380 | 665 | 712 | 7,798 | |||||||
Cash and marketable securities | 436 | |||||||||||||
Total assets | 8,234 | |||||||||||||
Acquisitions of property, plant | ||||||||||||||
and equipment | 133 | 130 | 196 | 16 | 2 | 2 | 479 | |||||||
Depreciation and amortization excluding | ||||||||||||||
long-lived assets writedowns and | (90) | (96) | (124) | (17) | (3) | (5) | (335) | |||||||
goodwill amortization | ||||||||||||||
Aluminum | |||||||||||||
(in millions of euros) | Primary | Aluminum | Packaging | Ferroalloys | International | Holdings | Total | ||||||
Aluminum | Conversion | & other | Trade (Restated) | (Restated) | |||||||||
2001 | |||||||||||||
Net sales | 1,851 | 2,676 | 2,418 | 358 | 4,209 | - | 11,512 | ||||||
Earnings from operations | 423 | 23 | 136 | - | 58 | (88) | 552 | ||||||
Restructuring expense, long-lived asset writedowns | (75) | ||||||||||||
Other income (expense) | 10 | ||||||||||||
Income (loss) from operations | 487 | ||||||||||||
Financial expense, net | (68) | ||||||||||||
Income (loss) before income taxes | 419 | ||||||||||||
Assets (excluding cash and Marketable | 2,019 | 2,004 | 2,396 | 388 | 829 | 618 | 8,254 | ||||||
securities) | |||||||||||||
Cash and marketable securities | 445 | ||||||||||||
Total assets | 8,699 | ||||||||||||
Acquisitions of property, plant and equipment | 51 | 137 | 177 | 20 | 2 | 2 | 389 | ||||||
Depreciation and amortization excluding long-lived assets writedowns and goodwill amortization | (86) | (91) | (125) | (19) | (3) | (4) | (328) | ||||||
Aluminum | |||||||||||||
Primary | Aluminum | Packaging | Ferroalloys | International | Holdings | Total | |||||||
(in millions of euros) | Aluminum | Conversion | & other | Trade (Restated) | (Restated) | ||||||||
2000 | |||||||||||||
Net sales | 2,039 | 2,600 | 2,085 | 377 | 3,773 | - | 10,874 | ||||||
Earnings from operations | 509 | 78 | 100 | - | 65 | (93) | 659 | ||||||
Restructuring expense,long-lived asset writedowns | (29) | ||||||||||||
Other income (expense) | (8) | ||||||||||||
Income (loss) from operations | 622 | ||||||||||||
Financial expense, net | (68) | ||||||||||||
Income (loss) before income taxes | 554 | ||||||||||||
Assets (excluding cash and Marketable securities) | 1,938 | 1,727 | 2,065 | 345 | 723 | 826 | 7,624 | ||||||
Cash and marketable securities | 463 | ||||||||||||
Total assets | 8,087 | ||||||||||||
Acquisitions of property, plant and equipment | 33 | 117 | 106 | 25 | 5 | 1 | 287 | ||||||
Depreciation and amortization excluding long-lived assets writedowns and goodwill | (85) | (78) | (113) | (20) | (3) | (4) | (303) | ||||||
amortization | |||||||||||||
B - GEOGRAPHIC INFORMATION (BY COUNTRY OF PRODUCTION)
(in millions of euros, as of December 31) | Net sales | Long-lived assets |
2002 | ||
France | 4,972 | 1,315 |
United States of America | 3,546 | 1,155 |
Australia | 356 | 421 |
Other | 3,035 | 741 |
Total | 11,909 | 3,632 |
2001 | ||
France | 4,719 | 1,432 |
United States of America | 3,695 | 1,346 |
Australia | 394 | 506 |
Other (Restated) | 2,704 | 718 |
Total (Restated) | 11,512 | 4,002 |
2000 | ||
France | 4,725 | 1,350 |
United States of America | 3,598 | 1,223 |
Australia | 421 | 234 |
Other (Restated) | 2,130 | 477 |
Total (Restated) | 10,874 | 3,284 |
Note 23 - List of Group Companies
Percentage of ownership interest as of December 31, 2002
COMPANIES ACCOUNTED UNDER THE GLOBAL METHOD ARE:
ALUMINUM METAL | ||
Alufin (Germany) | 100 | |
Aluminium de Grèce (Greece) | 60 | |
Aluminium Pechiney (France) (*) | 100 | |
Aluminium Pechiney SPV (France) | 100 | |
Cathjoh Holdings Pty Ltd (Australia) | 100 | |
électrification Charpente Levage (France) | 100 | |
électrification Charpente Levage DPG Engineering Pty Ltd (South Africa) | 100 | |
électrification Charpente Levage Canada - CDG Services Inc. (Canada) | 100 | |
Johcath Holdings Pty Ltd (Australia) | 100 | |
Pechiney Bécancour, Inc. (United States) | 100 | |
Pechiney Consolidated Australia PTY Ltd (Australia) | 100 | |
Pechiney Nederland C.V. (Netherlands) | 85 | |
Pechiney Nederland N.V. (Netherlands) | 100 | |
Pechiney Pacific PTY Ltd (Australia) | 100 | |
Pechiney Resources PTY Ltd (Australia) | 100 | |
Pechiney Sales Corporation (United States) | 100 | |
Société Financière pour le Développement de l'Aluminium (France) | 100 | |
ALUMINUM CONVERSION | ||
Affimet (France) | 100 | |
Aluminium Pechiney (France) (*) | 100 | |
Pechiney Aluminium Presswerk GmbH (Germany) | 100 | |
Pechiney Aviatube (France) | 100 | |
Pechiney Aviatube Ltd. (Great Britain) | 100 | |
Pechiney Cast Plate, Inc. (United States) | 100 | |
Pechiney Eurofoil Belgique S.A. (Belgium) | 100 | |
Pechiney Eurofoil Luxembourg S.A. (Luxembourg) | 100 | |
Pechiney Rhenalu (France) | 100 | |
Pechiney Rolled Products LLC (United States) | 100 | |
Pechiney Rolled Products Property and Equipment Co, LLC (United States) | 100 | |
Pechiney Softal (France) | 100 | |
Satma (France) | 100 | |
Société des Fonderies d'Ussel (France) | 100 |
PACKAGING | ||
Benson S.r.l (Italy) | 100 | |
Cebal Brasil Limitada (Brazil) | 100 | |
Cebal CR S.A. (Czech Republic) | 100 | |
Cebal Entec S.A. (Spain) | 100 | |
Cebal Italiana S.P.A (Italy) | 84 | |
Cebal Mexico S.A. de C.V. (Mexico) | 100 | |
Cebal Tuba SP ZO.O. (Poland) | 58 | |
Cebal UK Ltd (Great Britain) | 100 | |
Cebal S.A.S. (France). | 100 | |
Cebal Verpackungen GmbH & Co (Germany) | 100 | |
Cebal Zhongshan Co. Ltd (Chine) | 60 | |
Cepillos de Matamoros (Mexico) | 100 | |
Cosmetech Mably Europe (France) | 100 | |
Cosmetech Mably International Hong-Kong Ltd (Hong-Kong) | 100 | |
Cosmetech Mably International LLC (United States) | 100 | |
Decoplast (France) | 100 | |
Financière Techpack (France) | 100 | |
Guardian Española S.A. (Spain) | 100 | |
Henlopen Manufacturing Co, Inc (United States) | 100 | |
Industrias Metalicas Castello, SA (Spain) | 100 | |
JPS Packaging, Inc (United States) | 100 | |
Laffon S.P.A (Italy) | 100 | |
Lir France (France) | 100 | |
MT Packaging (France) | 100 | |
Pechiney Capalux (Canada) | 100 | |
Pechiney Cebal Packaging Ltd (Great Britain) | 100 | |
Pechiney Cechobal, S.r.o. (Czech Republic) | 100 | |
Pechiney Celograf S.A. (Spain) | 100 | |
Pechiney Capsules (France) (**) | 100 | |
Pechiney Emballage Flexible Europe (France) | 100 | |
Pechiney Lebensmittelverpackungen (Germany) | 100 | |
Pechiney Manufacture Marocaine d'Aluminium (Morocco) | 61 | |
Pechiney Plastic Packaging, Inc. (United States) (***) | 100 | |
Pechiney Scheuch GmbH & Co, KG (Germany) | 100 | |
Pet Plas Packaging Ltd (Great Britain) | 100 | |
Polibol S.A. (Spain) | 100 | |
Precis S.A. (Spain) | 100 | |
Société Française de Galvanoplastie (France) | 100 | |
Soplaril Italia S.p.A (Italy) | 100 | |
Soplaril Portugal Lda (Portugal) | 100 | |
Soplaril S.A. (France) | 100 | |
Techpack America Inc (United States) | 100 | |
Techpack America Cosmetic Packaging, L.P. (United States) | 100 | |
Techpack Deutschland Gmbh (Germany) | 100 | |
Techpack España, S.L. (Spain) | 100 | |
Techpack International (France) | 100 | |
TPI Mexicana S.A. (Mexico) | 100 | |
TPI Molplastic Ltda. (Brazil) | 100 |
RELATED INDUSTRIAL ACTIVITIES | ||
Ferroalloys | ||
Invensil (France) | 100 | |
Pechiney Electrométallurgie (France) | 100 | |
Pechiney Electrométallurgie Abrasifs-Réfractaires (France) | 100 | |
Silicon Smelters (South Africa) | 100 | |
Other | ||
Pechiney Centre de Recherches de Voreppe (France) | 100 | |
INTERNATIONAL TRADE | ||
Almet France (France) | 100 | |
Pechiney Approvisionnements Alumine (France) | 100 | |
Pechiney Deutschland GmbH (Germany) | 100 | |
Pechiney Far East (Hong-Kong) | 100 | |
Pechiney Italia S.p.A (Italy) | 100 | |
Pechiney Japon K.K. (Japan) | 100 | |
Pechiney Trading Company S.A. (Switzerland) | 100 | |
Pechiney Trading France (France) | 100 | |
Pechiney Trading Limited (Great Britain) | 100 | |
Pechiney UK Ltd (Great Britain) | 100 | |
Pechiney World Trade USA, Inc. (United-States) (****) | 100 | |
Pechiney World Trade (France) | 100 | |
HOLDINGS | ||
Compagnie Générale de Participation Industrielle et Financière (France) | 100 | |
Financière Européenne d'Emballages Pechiney (France) | 100 | |
Financière Européenne d'Emballages Pechiney Holdings UK Ltd (Great Britain) | 100 | |
Pechiney Aluminium Engineering (United States) | 100 | |
Pechiney Holdings, Inc. (United States) | 100 | |
Pechiney Metals Corporation (United States) | 100 | |
Pechiney Metals Corporation Lease Company (United States) | 100 | |
Pechiney Plastic Packaging, Inc. (United States) (***) | 100 | |
Pechiney Holdings UK Ltd (Great Britain) (*****) | 100 | |
Pechiney World Trade USA, Inc (United States) (****) | 100 | |
Sofiri (Luxembourg) | 100 |
THE MAJOR COMPANIES ACCOUNTED FOR UNDER THE EQUITY METHOD ARE:
Airlessystems (France) | 50 | |
Almet - a.m.b. (Germany) | 36 | |
Alucam (Cameroon) | 47 | |
Aluminium Dunkerque (France) | 35 | |
Carbone Savoie (France) | 30 | |
Pechiney Reynolds Québec, Inc. (Canada) | 50 | |
Queensland Alumina Limited (Australia) | 20 | |
Socatral (Cameroon) | 30 |
(*) | Aluminium Pechiney is comprised of "Aluminium Metal" and "Aluminium Conversion". |
(**) | Legal Name of Pechiney Emballage Alimentaire became Pechiney Capsules from September 2002. |
(***) | Pechiney Plastic Packaging, Inc. is comprised of "Packaging" and "Holdings". |
(****) | Pechiney World Trade USA, Inc. is comprised of "International Trade" and "Holdings". |
(*****) | Legal Name of Pechiney World Trade Holdings Ltd became Pechiney Holdings UK Ltd from June 2002. |
Note 24 - Compensation and Number of Employees
(year ended December 31) | 2002 | 2001 | 2000 | ||
Restated | Restated | ||||
Labor costs (in millions of euros) | 1,773 | 1,681 | 1,543 | ||
Average number of employees of consolidated subsidiaries | 33,499 | 32,402 | 29,680 | ||
Note 25 - Reconciliation with US GAAP (Restated)
The accounting principles used by the Group to prepare its consolidated financial statements conform with accounting principles generally accepted in France, which differ in certain significant respects from accounting principles generally accepted in the United States of America (US GAAP). Differences between the accounting principles applied to | prepare the Group consolidated financial statements and US GAAP are described below. Their impact is quantified in the reconciliation of consolidated net income and shareholders' equity. A condensed US GAAP statement of income, a condensed US GAAP balance sheet and certain other supplementary information are also presented. |
Restatement
As discussed in Note 1, in order to comply with the requirements of the United States Securities and Exchange Commission, the Group restated its French GAAP financial statements as presented herein as of December 31, 2001 and 2000 | and for each of the years ended December 31, 2002, 2001 and 2000. The impact of the restatement on previously reported US GAAP amounts is summarized in the table below. |
Earnings | Earnings | Earnings | ||||||||||||||
from | Net Income | per Share - | per Share - | Total | Total | Shareholders' | ||||||||||
Net Sales | Operations | (Loss) | Basic | Diluted | Assets | Liabilities | Equity | |||||||||
Year Ended December | ||||||||||||||||
31, 2002 | ||||||||||||||||
Previously reported | 11,918 | 423 | (4) | (0.07) | (0.07) | 8,374 | 5,465 | 2,909 | ||||||||
Adjustment | - | - | (5) | (0.06) | (0.06) | - | - | - | ||||||||
As restated | 11,918 | 423 | (9) | (0.13) | (0.13) | 8,374 | 5,465 | 2,909 | ||||||||
Year Ended December | ||||||||||||||||
31, 2001 | ||||||||||||||||
Previously reported | 11,043 | 503 | 194 | 2.43 | 2.42 | 8,745 | 5,508 | 3,237 | ||||||||
Adjustment | 458 | + 3 | + 1 | + 0.02 | + 0.01 | 16 | 11 | 5 | ||||||||
As restated | 11,501 | 506 | 195 | 2.45 | 2.43 | 8,761 | 5,519 | 3,242 | ||||||||
Year Ended December | ||||||||||||||||
31, 2000 | ||||||||||||||||
Previously reported | 10,679 | 658 | 314 | 3.90 | 3.88 | 7,975 | 4,800 | 3,175 | ||||||||
Adjustment | 195 | + 1 | 4 | + 0.04 | + 0.04 | 14 | 10 | 4 | ||||||||
As restated | 10,874 | 659 | 318 | 3.94 | 3.92 | 7,989 | 4,810 | 3,179 | ||||||||
Description of differences between accounting principles applied to prepare the consolidated financial statements and US GAAP
a) Derivative instruments and hedging activity
The changes introduced in US GAAP in 2001 by SFAS 133 and SFAS 138 (Accounting for Derivative Instruments and Hedging Activities) cannot be applied under French accounting principles. As a result, in the consolidated financial statements, the accounting for derivatives and hedging activities remained unchanged: In US GAAP financial statements, as of January 1, 2001: |
|
b) Goodwill
The changes introduced in US GAAP by SFAS 141 and SFAS 142 (Business Combinations and Goodwill and Other Intangible Assets) as of July 1, 2001 have not to be applied under French accounting principles. As a result, in the consolidated financial statements, all goodwill is amortized in accordance with accounting principles applied in prior periods. | In the US GAAP financial statements: |
c) Additional minimum pension liability
In the consolidated financial statements, the additional minimum pension liability required in certain cases by SFAS 87 is recorded with a counterpart in an asset account included in other long-term assets. In US GAAP financial statements, this additional liability (which is recorded | when, as a result of unamortized actuarial losses and prior service costs, the accrued liability would be lower than the excess of the accumulated benefit obligation over the fair value of the plan assets) is recorded with a counterpart in other comprehensive income. |
d) Comprehensive income (loss)
Comprehensive income includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. In the consolidated financial statements, the concept of comprehensive income does not exist because French accounting principles do not allow any change in equity corresponding to this definition other than net income, changes in the cumulative translation adjustment related to consolidated foreign subsidiaries and changes in accounting principles.
| In US GAAP financial statements, comprehensive income and its components must be displayed in a statement of comprehensive income. For the Group, this statement includes, in addition to net income: |
e) Impairment of Property, Plant and Equipment
Under French GAAP, write-downs of property, plant and equipment are recorded as an increase in accumulated depreciation.
| Under U.S. GAAP, write-downs for property, plant and equipment are recorded as a reduction to the cost basis. |
Reconciliation of net income (loss) and shareholders' equity | |||||
a) Net income (loss) | |||||
(in millions of euros) | 2002 | 2001 | 2000 | ||
(Restated) | (Restated) | (Restated) | |||
Net income (loss) as reported in the consolidated income statement | (55) | 234 | 318 | ||
Derivative instruments and hedging activities | 25 | (31) | - | ||
Goodwill amortization | 52 | 3 | - | ||
Income under US GAAP, before cumulative effect of change | 22 | 206 | 318 | ||
in accounting principle | |||||
Cumulative effect of change in accounting for derivatives | - | ||||
and hedging activities as of January 1, 2001 | - | (11) | - | ||
Cumulative effect of change in accounting for goodwill as of January 1, 2002 | (31) | - | - | ||
Net income (loss) under US GAAP | (9) | 195 | 318 | ||
b) Shareholders' equity | |||||
(in millions of euros) | 2002 | 2001 | 2000 | ||
(Restated) | (Restated) | (Restated) | |||
Shareholders' equity as reported in the consolidated balance sheet | 3,014 | 3,400 | 3,277 | ||
Derivative instruments and hedging activities | 15 | (40) | - | ||
Goodwill amortization | 21 | 3 | - | ||
Additional minimum pension liability | (141) | (121) | (98) | ||
Shareholders' equity under US GAAP | 2,909 | 3,242 | 3,179 | ||
Condensed US GAAP statement of income and balance sheet | |||||
a) Condensed US GAAP statement of income | |||||
(in millions of euros) | 2002 | 2001 | 2000 | ||
(Restated) | (Restated) | (Restated) | |||
Net sales and other operating income | 12,062 | 11,656 | 11,027 | ||
Costs of goods sold and operating expenses | (11,639) | (11,150) | (10,368) | ||
Restructuring expense, long-lived asset write-downs and other income (expense) | (248) | (65) | (37) | ||
Goodwill amortization | - | (26) | (20) | ||
Goodwill impairment | (77) | (22) | - | ||
Financial expense, net | (50) | (70) | (68) | ||
Income tax (expense) benefit | (44) | (113) | (172) | ||
Equity in net earnings of affiliates | 18 | 24 | (13) | ||
Minority interest | - | (28) | (31) | ||
Income before cumulative effect of change in accounting principle | 22 | 206 | 318 | ||
Cumulative effect of change in accounting for goodwill | |||||
and for derivatives and hedging activities | (31) | (11) | - | ||
Net income (loss) | (9) | 195 | 318 | ||
Net income per share "A" (in euros) | |||||
- Before cumulative effect of change in accounting principle | |||||
- Basic earnings per share | 0.26 | 2.59 | 3.94 | ||
- Diluted earnings per share | 0.26 | 2.57 | 3.92 | ||
- After cumulative effect of change in accounting principle | |||||
- Basic earnings per share | (0.13) | 2.45 | 3.94 | ||
- Diluted earnings per share | (0.13) | 2.43 | 3.92 | ||
b) Condensed US GAAP balance sheet | |||||
(in millions of euros) | 2002 | 2001 | 2000 | ||
(Restated) | (Restated) | (Restated) | |||
ASSETS | |||||
Cash | 283 | 332 | 377 | ||
Marketable securities | 153 | 113 | 86 | ||
Accounts receivable - trade | 1,269 | 1,448 | 1,512 | ||
Inventories, net | 1,524 | 1,601 | 1,448 | ||
Other current assets | 367 | 294 | 406 | ||
Property, plant and equipment, net | 2,832 | 2,997 | 2,476 | ||
Goodwill, net | 659 | 864 | 642 | ||
Other intangible assets, net | 163 | 145 | 166 | ||
Investments in equity affiliates | 285 | 280 | 261 | ||
Deferred income taxes, long-term | 499 | 339 | 331 | ||
Long-term investments and other long-term assets | 340 | 347 | 284 | ||
Total assets | 8,374 | 8,761 | 7,989 | ||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||
Short-term bank loans | 392 | 912 | 594 | ||
Accounts payable - trade | 1,451 | 1,515 | 1,511 | ||
Other current liabilities | 626 | 569 | 630 | ||
Long-term debt | 1,465 | 971 | 734 | ||
Deferred income taxes, long-term | 195 | 173 | 93 | ||
Other long-term liabilities | 1,187 | 1,210 | 1,079 | ||
Minority interest | 149 | 169 | 169 | ||
Shareholders' equity | 2,909 | 3,242 | 3,179 | ||
Total liabilities and shareholders' equity | 8,374 | 8,761 | 7,989 | ||
c) US GAAP statement of comprehensive income (loss) | |||||
(in millions of euros) | 2002 | 2001 | 2000 | ||
(Restated) | (Restated) | (Restated) | |||
Net income (loss) under US GAAP | (9) | 195 | 318 | ||
Other comprehensive income (loss), net of tax: | |||||
- Changes in cumulative translation adjustment | (205) | 59 | 79 | ||
- Changes in additional pension liability | (44) | (23) | (25) | ||
- Changes in fair value of derivative instruments designated as cash flow eges | 31 | 2 | - | ||
Comprehensive income (loss) under US GAAP | (227) | 233 | 372 | ||
Supplementary information
a) Effect of new US accounting standards
Effective January 1, 2002, the Group adopted Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which provides more detailed rules to assess the impairment of long-lived assets and to account for the disposal of long-lived assets. The adoption of this statement had no impact on the Group's financial position at January 1, 2002. Long-lived assets impairment recorded in 2002 amounted to € 102 million. Effective July 1, 2001 for business combinations for which the acquisition date is after June 30, 2001 and effective January 1, 2002 for other goodwill and intangible assets, the Group adopted SFAS No. 141 "Business Combinations" and SFAS No 142 "Goodwill and Other Intangible Assets", for purposes of the US GAAP reconciliation. These statements require that all business combinations be accounted for using the purchase method and that goodwill and other intangible assets with indefinite lives not be amortized; instead, these assets are tested for impairment at least annually. The application of SFAS 141 and SFAS 142 to acquisitions of the second half of 2001 had no significant impact on the Group's financial position or results of operations. The application of SFAS 141 and SFAS 142 to other goodwill and intangible assets resulted in a cumulative after-tax transition adjustment at January 1, 2002 amounting to € 31 million, charged to earnings. In 2002, no goodwill amortization was recorded but goodwill impairment amounting to € 77 million was recorded in the second half of the year. In 2001, goodwill amortization totaled € 26 million. Effective January 1, 2001, for purposes of US GAAP reconciliation, the Group adopted SFAS No. 133 "Accounting for Derivative instruments and Hedging Activities" and SFAS 138 which amended SFAS 133. These statements require that all derivative instruments (foreign exchange, interest rates, commodities) be recognized as assets or liabilities and measured at fair value. These statements also establish new criteria to define hedging transactions for which hedge accounting may be applied. | As a result of these new requirements, changes in the fair value of certain derivative instruments are recorded in earnings instead of being deferred until the income or loss on the hedged transaction is recorded. The transition adjustment on January 1, 2001 resulted in a cumulative after-tax charge of € 11 million recorded in earnings and a cumulative after-tax increase of other comprehensive income of € 3 million. Effective January 1, 2001, the Group adopted SFAS No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities". This statement provides revised standards for accounting for transfers of financial assets. The adoption of this statement had no impact on the Group's financial position or results of operations. In 2001, the Financial Accounting Standards Board issued SFAS No. 143 "Accounting for Asset Retirement Obligations". This statement provides new standards for accounting for tangible asset retirement obligations. For the Group, the effective date of this statement is January 1, 2003. The Group is currently evaluating the impact of adoption of this statement. In 2002, the Financial Accounting Standards Board issued SFAS No. 145 "Rescission of FASB Statements No 4, 44, and 64, Amendment of FASB Statement No 13, and Technical Corrections". This statement rescinds or amends various items in accounting pronouncements, such as the accounting for certain lease modifications arising after May 15, 2002, which have no application in the Group. In 2002, the Financial Accounting Standards Board issued SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities". This statement establishes new accounting rules for costs associated with an exit or disposal activity initiated after December 31, 2002. For the Group, the effective date of this statement is January 1, 2003. The Group is currently evaluating the impact of adoption of this statement. | |
Effects of adopting SFAS 142 The effects of adopting SFAS 142 on U.S. GAAP net income and U.S. GAAP income before cumulative effect from accounting change and on diluted earnings per share are as follows: |
2002 | 2001 | 2000 | ||||
(Restated) | (Restated) | (Restated) | ||||
U.S. GAAP net income | (9) | 195 | 318 | |||
Less: cumulative effect from change | ||||||
in accounting for goodwill | 31 | - | - | |||
U.S. GAAP income before cumulative effect from accounting change for goodwill | 22 | 195 | 318 | |||
Add: goodwill amortization | - | 26 | 20 | |||
U.S. GAAP adjusted net income before | ||||||
cumulative effect from accounting change for goodwill and goodwill amortization | 22 | 221 | 338 | |||
Diluted earnings per share "A" | 2002 | 2001 | 2000 | |||
(Restated) | (Restated) | (Restated) | ||||
U.S. GAAP net income | (0.13) | 2.45 | 3.94 | |||
Less: cumulative effect from change in | ||||||
accounting change for goodwill | 0.39 | - | - | |||
U.S. GAAP income before cumulative effect | ||||||
from accounting change for goodwill | (0.26) | 2.45 | 3.94 | |||
Add: goodwill amortization | - | 0.33 | 0.25 | |||
U.S. GAAP adjusted net income before cumulative effect | ||||||
from accounting change for goodwill and goodwill amortization | (0.26) | 2.78 | 4.19 | |||
b) Stock option plans and stock purchase plan
Determined in accordance with the intrinsic value method, the compensation cost corresponding to options granted under the current stock option plans (note 12g) and to shares issued under the December 2001 share purchase plan (note 12a) is immaterial or nil. Had the compensation cost been determined based on the fair value of the options or shares at the grant dates, net loss and net loss per share would have increased (and net income and net income per share would have decreased) to the pro forma amounts indicated below:
2002 | 2001 | 2000 | ||||||||||
As reported | Pro-forma | As reported | Pro-forma | As reported | Pro-forma | |||||||
(Restated) | (Restated) | (Restated) | (Restated) | (Restated) | (Restated) | |||||||
Net income (loss) (in millions of euros) | (9) | (18) | 195 | 185 | 318 | 315 | ||||||
Net income (loss) per share "A" (in | ||||||||||||
euros): | ||||||||||||
- Basic | (0.13) | (0.25) | 2.45 | 2.32 | 3.94 | 3.90 | ||||||
- Diluted | (0.13) | (0.25) | 2.43 | 2.30 | 3.92 | 3.88 |
The weighted-average fair value of the options at the date of grant and the assumptions used to estimate this fair value using the Black-Scholes option-pricing model were as follows:
2002 Plan | 2001 Plan | 2000 Plan | 1999 Plans | 1998 Plans | 1997 Plans | 1996 Plan | ||||||||
Fair value per | ||||||||||||||
option (in euros) | 23.97 | 14.75 | 13.58 | 12.60 | 8.02 | 17.44 | 11.05 | |||||||
Assumptions: | ||||||||||||||
Dividend yield | 2% | 2% | 2% | 2% | 1.88% | 2.5% | 2.5% | |||||||
Expected volatility | 40% | 25% | 25% | 25% | 25% | 25% | 22% | |||||||
Interest rates | 3.74% | 5.07% | 5.37% | 4.25% to | 3.48% to | 4.74% to | 3.90% to | |||||||
5.21% | 4.06% | 5.30% | 5.80% | |||||||||||
Expected life | 7 years | 7 years | 7 years | 7 years | 7 years | 7 years | 7 years | |||||||
The fair value of the shares issued at a discount under the 2001 share purchase plan was € 51.91 for each of the 855,277 shares issued.
c) Effective Tax Rate
The reconciliation of the effective and enacted tax rates in Note 18 is based on pre-tax income before amortization and writedowns of goodwill because these items represent permanent book/tax differences and, accordingly, have no impact on income tax expense. The reconciliation with the effective tax rate based on pre-tax income is as follows:
2002 | 2001 | 2000 | ||||
(Restated) | (Restated) | (Restated) | ||||
Enacted tax rate | 35.43% | 36.43% | 37.76% | |||
Effect of foreign tax rates differential | (21.00)% | (5.10)% | (3.70)% | |||
Goodwill amortization and | 56.80% | 5.40% | 1.40% | |||
write-downs | ||||||
Other permanent differences | (29.50)% | (3.80)% | (7.10)% | |||
Taxes at lower rates | 32.70% | 1.30% | (0.50)% | |||
Change in valuation allowance | 32.50% | 2.20% | 2.50% | |||
Other | (17.90)% | (3.70)% | 0.70% | |||
Withholding taxes | 5.20% | 1.90% | 0.90% | |||
Effective tax rate | 94.23% | 34.63% | 32.06% | |||
d) Derivative instruments and hedging activities
At December 31, 2002, all derivative instruments held by the Group are recognized in the US GAAP balance sheet at fair value. These derivative instruments are used to hedge foreign exchange, commodity and interest rate risks, as explained in note 19. Among these hedges, the following ones have been accounted for as hedges in the US GAAP accounts. Cash flows hedges Foreign exchange: the effects of fluctuations in exchange rates on forecasted payments and receipts of foreign currencies related to the main (i) long-term contracts for the sale of fabricated aluminum products, (ii) sale and purchase contracts of aluminum and alumina and (iii) operating expenses incurred by certain subsidiaries in currencies other than their functional currency are hedged using forward and option contracts. These hedges are accounted for as cash flow hedges. Metal: the effects of fluctuations in aluminum prices on forecasted purchases related to long-term sales contracts are hedged using forward instruments. These hedges are accounted for as cash flow hedges. For these transactions, which are designated and qualify as cash flow hedges, changes in the fair value of hedging instruments are recorded in other comprehensive income, except for the ineffective portion of the change in fair value, which is immediately recorded in earnings. Amounts recorded in other comprehensive income during the hedging period are reclassified to earnings in the period in which earnings are impacted by the | hedged transaction, or when the hedge no longer qualifies as a cash flow hedge. Hedging gains and losses are recorded in net sales, cost of goods sold or other operating cost depending on the nature of the hedged transaction. These hedges cover periods not exceeding 5 years. Fair value hedges Metal: the effects of fluctuations in prices of aluminum and other metals in the period when the metal is held in the inventory of certain trading companies in the International Trade division are hedged using forward instruments. These hedges are accounted for as fair value hedges. Interest rates: certain fixed rate borrowings have been transformed into variable rate borrowings, using interest swaps; these hedges are accounted for as fair value hedges. For these transactions, which are designated and qualify as fair value hedges, changes in the fair value of hedging instruments are recorded in earnings, in the caption corresponding to the nature of the hedged item. They offset most of the changes in the fair value of hedged items, which are also recorded in earnings, in the same caption. Hedges other than those described above are not accounted for as hedges. Accordingly, changes in the fair value of derivative instruments used for these hedges are recorded in earnings, with no recognition of the inverse effect of the changes in the fair value of the hedged items. |
F54