Comparison with American accounting standards (US GAAP)
Net income | Shareholders' equity | |||||||||||
(in millions of euros) | Q3 | Q3 | (in millions of euros) | 31/12 | 30/09 | |||||||
2002 | 2003 | 2002 | 2003 | |||||||||
Net income under French GAAP | (14) | (76) | Shareholders' equity under French GAAP | 3 014 | 2 779 | |||||||
Derivative instruments and hedging activities | (11) | 13 | Derivative instruments and hedging activities | 15 | 46 | |||||||
Goodwill amortisation | 7 | 1 | Goodwill amortisation | 21 | 35 | |||||||
Income under USGAAP, before | (18) | (62) | Additional minimum pension liability | (141) | (135) | |||||||
cumulative effect of change in accounting principle | Shareholders' equity under USGAAP | 2 909 | 2 725 | |||||||||
Change in accounting for asset retirement | - | 1 | ||||||||||
obligations as of January 1, 2003 | ||||||||||||
Net income under US GAAP | (18) | (61) | ||||||||||
The accounting principles applied by the Group in the preparation of its financial statements differ in certain points from generally accepted accounting principles in the United States (US GAAP). The impact of these differences is presented in the above tables and the differences are described below.
Accounting for derivatives and hedging operations
Pechiney's US GAAP financial statements reflect the application of SFAS 133, which requires that derivative instruments (foreign exchange, interest rates, commodities) be recognized in the balance sheet at fair value, and sets criteria to define transactions that may be accounted for as hedging operations.
On the basis of these criteria, certain hedging operations, although efficient from an economic point of view, are not recognized as hedging activities As a result, gains and losses due to the mark to market of certain hedging instruments are recorded in net income or in equity, with no recognition of the inverse effect of the mark to market of the hedged items. For this reason, the impact of this standard on results varies according to market conditions and is difficult to forecast. The application of SFAS 133 generated a net accounting gain (with no impact on cash flow) of € 13 million in the third quarter of 2003.
Amortisation of goodwill
In Pechiney's US GAAP financial statements reflect the application of SFAS 142, which requires that goodwill be not amortised on a recurring basis, but be regularly tested for impairment, leading, if necessary to non-recurring amortisation. In the third quarter of 2003, the application of SFAS 142 led to the cancellation of recurring amortisation (7 million euros) and to goodwill impairment higher than that recorded under French GAAP by 6 million euros.
Cumulative effect of initially applying SFAS 143
In Pechiney's US GAAP financial statements and French GAAP financial statements, the accounting standard SFAS 143, "Accounting for asset retirement obligation", was adopted effective January 1, 2003. In the USGAAP financial statements, the cumulative effect adjustment at January 1, 2003 is presented on a specific line, at the bottom of the statement of income for the first quarter of 2003. In the French GAAP financial statements, the cumulative effect adjustment is directly recognized in equity.
SFAS 143 requires that legal obligations associated with the retirement of long-lived assets and resulting from normal activities be recognized as liabilities, at fair value, when incurred. These asset retirement costs are capitalized by increasing the carrying amount of the related asset and are depreciated over the useful life of the asset. For Pechiney, the main change relates to the cost of disposal of spent pot lining of aluminum pots in operation, which is now recognized as a liability and capitalized from the time the lining is placed into service. As a consequence, since January 1, 2003, the cost of replacing pot lining, which was previously charged to income, has also been capitalized and depreciated over the useful life of the lining, including for pots in operation at January 1, 2003.
The positive cumulative effect at January 1, 2003 was adjusted in the third quarter of 2003 by 1 million euros, from 36 million euros to 37 million euros, corresponding to an increase of net property plant and equipment, environmental reserves, investment in equity affiliates and minority interest by respectively 88, 31, 4 and 4 million euros and a decrease of net deferred tax assets by 20 million euros.
Balance-sheet - The differences in the balance sheet as of September 30, 2003 included the impacts of SFAS 133, SFAS 142 and SFAS 87 (reduction in shareholders' equity due to the different way complementary retirement provisions are recorded in US and in French GAAP). These differences amounted to a net reduction in shareholders' equity of € 54 million as of June 30, 2003 in US GAAP, down from € 105 million as of December 31, 2002.
Appendix
PECHINEY
Consolidated Statement of Income
French GAAP
(in millions of euros) | Q3 2002 | Q3 2003 | |||
Net sales | 3,020 | 2,555 | |||
Other operating revenues | 35 | 41 | |||
Cost of goods sold (excluding depreciation) | (2,717) | (2,280) | |||
Selling, general and administrative expense | (142) | (144) | |||
Research and development expense | (22) | (21) | |||
Amortisation (excluding goodwill) | (79) | (93) | |||
Earnings from operations | 95 | 58 | |||
Restructuring expense and Long-lived assets writedowns | (7) | (68) | |||
Other (expense) income | (40) | (47) | |||
Income from operations | 48 | (57) | |||
Financial expense, net | (16) | (13) | |||
Income before income taxes | 32 | (70) | |||
Income tax benefit (expense) | (19) | 18 | |||
Income from consolidated companies | 13 | (52) | |||
Equity in net earnings of affiliates | 0 | 3 | |||
Minority interests | (3) | (1) | |||
Net Income before goodwill | 10 | (50) | |||
Goodwill amortisation | (8) | (7) | |||
Goodwill impairment | (16) | (19) | |||
Net Income | (14) | (76) | |||
Net Income per share "A" (€) (*) | (0.18) | (0.97) | |||
(*) Computed on the average number of shares, i.e. 77.942.144 for the third quarter of 2003 (excluding treasury shares).
Summarized Consolidated Statement of Cash Flow
(in millions of euros) | Q3 2002 | Q3 2003 | ||
Resources from Operations | 176 | 111 | ||
Change in working capital requirements | 73 | 72 | ||
Utilisation of provisions and other | (31) | (50) | ||
Net cash provided by Operating activities | 218 | 133 | ||
Capital expenditures | (119) | (100) | ||
Financial investments | (6) | (94) | ||
Divestitures and other | 14 | 1 | ||
Net cash used in investing activities | (111) | (193) | ||
Increase in long term debt and other financial debt | 28 | 110 | ||
Dividends paid | (23) | (23) | ||
Purchase of treasury shares | (22) | - | ||
Net cash provided by (used in) financing activities | (17) | 87 | ||
Net effect of foreign currency translation on cash | (44) | 9 | ||
Increase (decrease) in Cash and cash equivalents | 46 | 36 | ||
PECHINEY
Consolidated Statement of Income
French GAAP | ||||||||||||||||||||
2002 | 2003 | |||||||||||||||||||
(in millions of euros) | Q1 | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | |||||||||||
(restated)* | ||||||||||||||||||||
Net sales | 2,814 | 2,814 | 3,397 | 3,020 | 2,678 | 2,820 | 2,626 | 2,555 | ||||||||||||
Other operating revenues | 30 | 30 | 41 | 35 | 38 | 30 | 51 | 41 | ||||||||||||
Cost of goods sold (excluding depreciation) | (2,473) | (2,473) | (3,042) | (2,717) | (2,379) | (2,513) | (2,344) | (2,280) | ||||||||||||
Selling, general and administrative expense | (153) | (153) | (152) | (142) | (163) | (148) | (144) | (144) | ||||||||||||
Research and development expense | (24) | (24) | (20) | (22) | (24) | (24) | (24) | (21) | ||||||||||||
Amortisation (excluding goodwill) | (90) | (90) | (87) | (79) | (79) | (94) | (98) | (93) | ||||||||||||
Earnings from operations | 104 | 104 | 137 | 95 | 71 | 71 | 67 | 58 | ||||||||||||
Restructuring expense and Long-lived | (10) | (10) | (43) | (7) | (85) | (50) | (10) | (68) | ||||||||||||
assets writedowns | ||||||||||||||||||||
Other (expense) income | (6) | (11) | (11) | (40) | (41) | (9) | (7) | (47) | ||||||||||||
Income from operations | 88 | 83 | 83 | 48 | (55) | 12 | 50 | (57) | ||||||||||||
Financial expense, net | (11) | (11) | (11) | (16) | (11) | (11) | (13) | (13) | ||||||||||||
Income before income taxes | 77 | 72 | 72 | 32 | (66) | 1 | 37 | (70) | ||||||||||||
Income tax benefit (expense) | (28) | (28) | (31) | (19) | 39 | 5 | (20) | 18 | ||||||||||||
Income from consolidated companies | 49 | 44 | 41 | 13 | (27) | 6 | 17 | (52) | ||||||||||||
Equity in net earnings of affiliates | 1 | 1 | 3 | 0 | (1) | 2 | 3 | 3 | ||||||||||||
Minority interests | (4) | (4) | 4 | (3) | 3 | (2) | (1) | (1) | ||||||||||||
Net Income before goodwill | 46 | 41 | 48 | 10 | (25) | 6 | 19 | (50) | ||||||||||||
Goodwill amortisation | (9) | (9) | (8) | (8) | (7) | (7) | (7) | (7) | ||||||||||||
Goodwill impairment | - | - | (31) | (16) | (50) | - | - | (19) | ||||||||||||
Net Income | 37 | 32 | 9 | (14) | (82) | (1) | 12 | (76) | ||||||||||||
(*) As restated to reflect the elimination of the cumulative net income recorded upon the initial consolidation of the subsidiary Pechiney Far East as of January 1, 2002, to comply with the requirements of the United States Securities and Exchange Commission (see Note 1 to the consolidated financial statements in the Annual Report on Form 20-F/A filed with the SEC on October 24, 2003).
Earnings from operations (new organization)
2002 | 2003 | |||||||||||||||||
Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | |||||||||||
Primary Aluminium | 69 | 93 | 70 | 50 | 42 | 37 | 33 | |||||||||||
Aluminium Conversion | 4 | 9 | 0 | 0 | 15 | 14 | 10 | |||||||||||
Packaging | 33 | 40 | 32 | 24 | 26 | 26 | 23 | |||||||||||
International Trade | 19 | 18 | 16 | 20 | 14 | 14 | 14 | |||||||||||
Holdings | (21) | (23) | (23) | (23) | (26) | (24) | (22) | |||||||||||
Total | 104 | 137 | 95 | 71 | 71 | 67 | 58 | |||||||||||
Depreciation | (90) | (87) | (79) | (79) | (94) | (98) | (93) | |||||||||||
Consolidated primary Aluminium Prod.(kt) | 215 | 219 | 221 | 222 | 217 | 210 | 212 | |||||||||||
Average realised LME price ($/t)(*) | 1,354 | 1,385 | 1,360 | 1,334 | 1,368 | 1,390 | 1.394 | |||||||||||
Realised € /$ - Primary Aluminium | 0.88 | 0.90 | 0.95 | 0.98 | 1.04 | 1.11 | 1.13 | |||||||||||
Average euro/U.S. dollar | 0.88 | 0.92 | 0.98 | 1.00 | 1.07 | 1.14 | 1.12 | |||||||||||
(*) Average actual selling price of a metric ton of primary aluminium (excluding premiums) negotiated by the Group during the quarter.
Appendix
Consolidated Balance Sheet
French GAAP | |||||
(in millions of euros) | As of 31/12/2002 | As of 30/09/2003 | |||
ASSETS | |||||
Long-term assets | |||||
Property, plant and equipment, net | 2,832 | 2,921 | |||
Goodwill, net | 637 | 597 | |||
Other intangible assets, net | 163 | 129 | |||
Investments in equity affiliates | 285 | 290 | |||
Long-term investments | 139 | 100 | |||
Deferred income taxes | 505 | 536 | |||
Other long-term assets | 279 | 337 | |||
4,840 | 4,910 | ||||
Current assets | |||||
Inventories, net | 1,525 | 1,440 | |||
Accounts receivable - Trade | 1,281 | 1,319 | |||
Deferred income taxes | 51 | 54 | |||
Prepaid expenses | 72 | 69 | |||
Other receivables | 29 | 27 | |||
Marketable securities | 153 | 58 | |||
Cash | 283 | 329 | |||
3,394 | 3,296 | ||||
Total assets | 8,234 | 8,206 | |||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||
Shareholder's equity | |||||
Capital stock | |||||
- Common shares "A" | 1,242 | 1,260 | |||
- Preferred shares "B" | 16 | - | |||
Treasury shares | (180) | (181) | |||
Share premium | 790 | 790 | |||
Retained earnings | 1,297 | 1,165 | |||
Cumulative translation adjustment | (151) | (255) | |||
3,014 | 2,779 | ||||
Minority interests | 149 | 148 | |||
Long-term liabilities | |||||
Deferred income taxes | 195 | 214 | |||
Other long-term liabilities | 1,142 | 1,180 | |||
1,337 | 1,394 | ||||
Long-term debt | 1,465 | 1,338 | |||
Current liabilities | |||||
Accounts payable - Trade | 1,456 | 1,513 | |||
Accrued liabilities | 376 | 354 | |||
Other payables | 8 | 14 | |||
Current portion of long-term debt | 39 | 178 | |||
Short-term bank loans | 390 | 488 | |||
2,269 | 2,547 | ||||
Total liabilities and shareholders' equity | 8,234 | 8,206 | |||
PECHINEY
Consolidated Statement of Income
US GAAP | |||||
(in millions of euros) | Q3 2002 | Q3 2003 | |||
Net sales | 3,021 | 2,557 | |||
Other operating revenues | 35 | 41 | |||
Cost of goods sold (excluding depreciation) | (2,738) | (2,264) | |||
Selling, general and administrative expense | (142) | (144) | |||
Research and development expense | (22) | (21) | |||
Amortisation (excluding goodwill) | (79) | (93) | |||
Restructuring expense and Long-lived assets wrtitedown | (7) | (68) | |||
Other (expense) income | (40) | (47) | |||
Goodwill amortisation | - | - | |||
Goodwill impairment | (17) | (25) | |||
Financial expense, net | (12) | (13) | |||
Income tax benefit (expense) | (14) | 13 | |||
Equity in net earnings of affiliates | 0 | 3 | |||
Minority interests | (3) | (1) | |||
Net Income before cumulative effect of accounting change | (18) | (62) | |||
Cumulative effect of accounting change | - | 1 | |||
Net income | (18) | (61) | |||
Net Income per share "A" (€) (*) | (0.23) | (0.78) | |||
(*) Computed on the average number of shares, i.e. 77.942.144 for the third quarter of 2003 (excluding treasury shares).
Summarized Consolidated Statement of Cash Flow
(in millions of euros) | Q3 2002 | Q3 2003 | ||
Net cash provided by Operating activities | 218 | 133 | ||
Capital expenditures | (119) | (100) | ||
Financial investments | (6) | (94) | ||
Divestitures and other | 14 | 1 | ||
Net cash used in investing activities | (111) | (193) | ||
Increase in long term debt and other financial debt | 28 | 110 | ||
Dividends paid | (23) | (23) | ||
Purchase of treasury shares | (22) | - | ||
Net cash provided by (used in) financing activities | (17) | 87 | ||
Net effect of foreign currency translation on cash | (44) | 9 | ||
Increase (decrease) in Cash and cash equivalents | 46 | 36 | ||
Appendix
Consolidated Balance Sheet
US GAAP | ||||
(in millions of euros) | As of 31/12/2002 | As of 30/09/2003 | ||
ASSETS | ||||
Current assets | ||||
Cash | 283 | 328 | ||
Marketable securities | 153 | 58 | ||
Other receivables | 11 | 8 | ||
Prepaid expenses | 309 | 302 | ||
Deferred income taxes | 47 | 38 | ||
Accounts receivable - Trade | 1,269 | 1,312 | ||
Inventories, net | 1,524 | 1,442 | ||
3,596 | 3,488 | |||
Long-term assets | ||||
Other long-term assets | 201 | 275 | ||
Deferred income taxes | 499 | 529 | ||
Long-term investments | 139 | 100 | ||
Investments in equity affiliates | 285 | 292 | ||
Other intangible assets, net | 163 | 129 | ||
Goodwill, net | 659 | 633 | ||
Property, plant and equipment, net | 2,832 | 2,921 | ||
4,778 | 4,879 | |||
Total assets | 8,374 | 8,367 | ||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||
Short term debt | ||||
Short term bank loans | 392 | 488 | ||
Current portion of long term debt | 39 | 178 | ||
Other payables | 8 | 14 | ||
Accrued liabilities | 579 | 518 | ||
Accounts payable - Trade | 1,451 | 1,513 | ||
Other long term liabilities | 2,469 | 2,711 | ||
Long term Debt | 45 | 51 | ||
Long term Liabilities | 1,465 | 1,338 | ||
Other long term liabilities | 1,142 | 1,180 | ||
Deferred income taxes | 195 | 214 | ||
Minority Interests | 1,337 | 1,394 | ||
Shareholder's equity | 149 | 148 | ||
Fair value of derivative instruments | 33 | 43 | ||
Cumulative translation adjustment | (151) | (254) | ||
Additional minimum pension liability | (141) | (135) | ||
Retained earnings | 1,300 | 1,202 | ||
Share premium | 790 | 790 | ||
Treasury shares | (180) | (181) | ||
Capital stock | 1,258 | 1,260 | ||
- Common shares "A" | 1,242 | 1,260 | ||
- Preferred shares "B" | 16 | |||
2,909 | 2,725 | |||
Total liabilities and shareholders' equity | 8,374 | 8,367 |