CANADA | Inapplicable |
(State or Other Jurisdiction of | (I.R.S. Employer Identification No.) |
Incorporation or Organization) |
Third Quarter | Nine Months | ||||||||||||
Periods ended September 30 | 2006 | 2005 | 2006 | 2005 | |||||||||
(in millions of US$, except per share amounts) | |||||||||||||
Sales and operating revenues | 5,769 | 4,887 | 17,422 | 15,271 | |||||||||
Costs and expenses | |||||||||||||
Cost of sales and operating expenses, excluding depreciation | |||||||||||||
and amortization noted below | 4,454 | 3,921 | 13,228 | 12,141 | |||||||||
Depreciation and amortization | 273 | 266 | 782 | 806 | |||||||||
Selling, administrative and general expenses | 327 | 331 | 1,057 | 1,056 | |||||||||
Research and development expenses | 50 | 66 | 157 | 164 | |||||||||
Interest | 63 | 92 | 208 | 267 | |||||||||
Restructuring charges - net (note 6) | 22 | 32 | 130 | 142 | |||||||||
Other expenses (income) - net (note 10) | 11 | 23 | (18 | ) | 10 | ||||||||
5,200 | 4,731 | 15,544 | 14,586 | ||||||||||
Income from continuing operations before income taxes and | |||||||||||||
other items | 569 | 156 | 1,878 | 685 | |||||||||
Income taxes (note 9) | 146 | 101 | 610 | 269 | |||||||||
Income from continuing operations before other items | 423 | 55 | 1,268 | 416 | |||||||||
Equity income | 41 | 16 | 106 | 73 | |||||||||
Minority interests | (4 | ) | 1 | (6 | ) | (1 | ) | ||||||
Income from continuing operations | 460 | 72 | 1,368 | 488 | |||||||||
Income (Loss) from discontinued operations (note 4) | (4 | ) | 9 | - | 2 | ||||||||
Income before cumulative effect of accounting change | 456 | 81 | 1,368 | 490 | |||||||||
Cumulative effect of accounting change, net of income | |||||||||||||
taxes of $2 (nil in 2005) (note 2) | - | - | (4 | ) | - | ||||||||
Net income | 456 | 81 | 1,364 | 490 | |||||||||
Dividends on preference shares | 3 | 2 | 8 | 5 | |||||||||
Net income attributable to common shareholders | 453 | 79 | 1,356 | 485 | |||||||||
Earnings (Loss) per share (note 5) | |||||||||||||
Basic: | |||||||||||||
Income from continuing operations | 1.21 | 0.19 | 3.63 | 1.30 | |||||||||
Income (Loss) from discontinued operations | (0.01 | ) | 0.02 | - | 0.01 | ||||||||
Cumulative effect of accounting change | - | - | (0.01 | ) | - | ||||||||
Net income per common share - basic | 1.20 | 0.21 | 3.62 | 1.31 | |||||||||
Diluted: | |||||||||||||
Income from continuing operations | 1.21 | 0.19 | 3.62 | 1.30 | |||||||||
Income (Loss) from discontinued operations | (0.01 | ) | 0.02 | - | 0.01 | ||||||||
Cumulative effect of accounting change | - | - | (0.01 | ) | - | ||||||||
Net income per common share - diluted | 1.20 | 0.21 | 3.61 | 1.31 | |||||||||
Dividends per common share | 0.20 | 0.15 | 0.50 | 0.60 |
September 30, 2006 | December 31, 2005 | ||||||
(in millions of US$) | |||||||
ASSETS | |||||||
Current assets | |||||||
Cash and time deposits | 158 | 181 | |||||
Trade receivables (net of allowances of $57 in 2006 and $56 in 2005) | 2,944 | 2,308 | |||||
Other receivables | 1,205 | 946 | |||||
Deferred income taxes | 192 | 150 | |||||
Inventories (note 11) | 3,104 | 2,734 | |||||
Current assets held for sale (note 4) | 15 | 119 | |||||
Total current assets | 7,618 | 6,438 | |||||
Deferred charges and other assets | 1,233 | 1,052 | |||||
Investments | 1,491 | 1,511 | |||||
Deferred income taxes | 862 | 863 | |||||
Property, plant and equipment | |||||||
Cost (excluding Construction work in progress) | 17,529 | 16,990 | |||||
Construction work in progress | 2,673 | 1,604 | |||||
Accumulated depreciation | (8,369 | ) | (7,561 | ) | |||
11,833 | 11,033 | ||||||
Intangible assets (net of accumulated amortization of $316 in 2006 | |||||||
and $233 in 2005) | 976 | 1,013 | |||||
Goodwill | 4,635 | 4,713 | |||||
Long-term assets held for sale (note 4) | 2 | 15 | |||||
Total assets | 28,650 | 26,638 | |||||
September 30, 2006 | December 31, 2005 | ||||||
(in millions of US$) | |||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||
Current liabilities | |||||||
Payables and accrued liabilities (note 12) | 4,992 | 4,608 | |||||
Short-term borrowings | 346 | 348 | |||||
Debt maturing within one year | 40 | 802 | |||||
Deferred income taxes | 28 | 25 | |||||
Current liabilities of operations held for sale (note 4) | 11 | 62 | |||||
Total current liabilities | 5,417 | 5,845 | |||||
Debt not maturing within one year | 5,399 | 5,265 | |||||
Deferred credits and other liabilities | 1,753 | 1,608 | |||||
Post-retirement benefits | 3,224 | 3,037 | |||||
Deferred income taxes | 1,337 | 1,172 | |||||
Minority interests | 67 | 67 | |||||
Shareholders’ equity | |||||||
Redeemable non-retractable preference shares | 160 | 160 | |||||
Common shareholders' equity | |||||||
Common shares | 6,381 | 6,181 | |||||
Additional paid-in capital | 673 | 683 | |||||
Retained earnings | 4,208 | 3,048 | |||||
Common shares held by a subsidiary | (31 | ) | (31 | ) | |||
Accumulated other comprehensive income (loss) (note 14) | 62 | (397 | ) | ||||
11,293 | 9,484 | ||||||
11,453 | 9,644 | ||||||
Commitments and contingencies (note 13) | |||||||
Total liabilities and shareholders’ equity | 28,650 | 26,638 | |||||
Third Quarter | Nine Months | ||||||||||||
Periods ended September 30 | 2006 | 2005 | 2006 | 2005 | |||||||||
(in millions of US$) | |||||||||||||
OPERATING ACTIVITIES | |||||||||||||
Net income | 456 | 81 | 1,364 | 490 | |||||||||
Cumulative effect of accounting change | - | - | 4 | - | |||||||||
Loss (Income) from discontinued operations | 4 | (9 | ) | - | (2 | ) | |||||||
Income from continuing operations | 460 | 72 | 1,368 | 488 | |||||||||
Adjustments to determine cash from operating activities: | |||||||||||||
Depreciation and amortization | 273 | 266 | 782 | 806 | |||||||||
Deferred income taxes | 73 | 86 | 300 | 128 | |||||||||
Equity income, net of dividends | (17 | ) | (5 | ) | (35 | ) | (29 | ) | |||||
Asset impairment charges | 12 | 5 | 57 | 40 | |||||||||
Loss (Gain) on disposal of businesses and investments - net | (4 | ) | (5 | ) | (8 | ) | 11 | ||||||
Stock option compensation | 3 | 4 | 39 | 14 | |||||||||
Change in operating working capital | |||||||||||||
Change in receivables | 151 | 325 | (605 | ) | (250 | ) | |||||||
Change in inventories | (164 | ) | 26 | (273 | ) | (88 | ) | ||||||
Change in payables and accrued liabilities | (4 | ) | (72 | ) | 126 | (391 | ) | ||||||
Change in deferred charges, other assets, deferred credits | |||||||||||||
and other liabilities, and post-retirement benefits - net | 21 | (13 | ) | 188 | 137 | ||||||||
Other - net | (1 | ) | (34 | ) | (3 | ) | (119 | ) | |||||
Cash from operating activities in continuing operations | 803 | 655 | 1,936 | 747 | |||||||||
Cash from operating activities in discontinued | |||||||||||||
operations | 1 | 4 | 9 | 54 | |||||||||
Cash from operating activities | 804 | 659 | 1,945 | 801 | |||||||||
FINANCING ACTIVITIES | |||||||||||||
Proceeds from issuance of new debt - net of issuance costs | 9 | 21 | 380 | 1,237 | |||||||||
Debt repayments | (250 | ) | (210 | ) | (1,086 | ) | (1,456 | ) | |||||
Short-term borrowings - net | (13 | ) | (52 | ) | (13 | ) | (2,045 | ) | |||||
Common shares issued | 3 | 6 | 152 | 16 | |||||||||
Dividends - Alcan shareholders (including preference) | (78 | ) | (58 | ) | (195 | ) | (173 | ) | |||||
- Minority interests | (1 | ) | (1 | ) | (2 | ) | (2 | ) | |||||
Cash used for financing activities in continuing operations | (330 | ) | (294 | ) | (764 | ) | (2,423 | ) | |||||
Cash used for financing activities in discontinued | |||||||||||||
operations | - | (59 | ) | - | (55 | ) | |||||||
Cash used for financing activities | (330 | ) | (353 | ) | (764 | ) | (2,478 | ) |
Third Quarter | Nine Months | ||||||||||||
Periods ended September 30 | 2006 | 2005 | 2006 | 2005 | |||||||||
(in millions of US$) | |||||||||||||
INVESTMENT ACTIVITIES | |||||||||||||
Purchase of property, plant and equipment | (576 | ) | (405 | ) | (1,471 | ) | (1,103 | ) | |||||
Business acquisitions and purchase of investments, net of | |||||||||||||
cash and time deposits acquired | (8 | ) | (31 | ) | (48 | ) | (73 | ) | |||||
Net proceeds from disposal of businesses, investments and | |||||||||||||
other assets | 27 | 141 | 234 | 176 | |||||||||
Settlement of amounts due from Novelis - net | - | - | - | 2,535 | |||||||||
Other | 58 | - | 70 | - | |||||||||
Cash from (used for) investment activities in continuing | |||||||||||||
operations | (499 | ) | (295 | ) | (1,215 | ) | 1,535 | ||||||
Cash from (used for) investment activities in discontinued | |||||||||||||
operations | - | (1 | ) | 5 | 63 | ||||||||
Cash from (used for) investment activities | (499 | ) | (296 | ) | (1,210 | ) | 1,598 | ||||||
Effect of exchange rate changes on cash and time deposits | 1 | 4 | 6 | (25 | ) | ||||||||
Increase (Decrease) in cash and time deposits | (24 | ) | 14 | (23 | ) | (104 | ) | ||||||
Cash and time deposits - beginning of period | 182 | 222 | 181 | 340 | |||||||||
Cash and time deposits - end of period | 158 | 236 | 158 | 236 |
-6-
Third Quarter | Nine Months | ||||||||||||
Periods ended September 30 | 2006 | 2005 | 2006 | 2005 | |||||||||
Sales | - | 37 | 55 | 313 | |||||||||
Income (Loss) from operations | - | 3 | (1 | ) | 11 | ||||||||
Gain (Loss) on disposal - net | (3 | ) | 8 | (2 | ) | (2 | ) | ||||||
Pre-tax income (loss) | (3 | ) | 11 | (3 | ) | 9 | |||||||
Income tax (expense) recovery | (1 | ) | (2 | ) | 3 | (7 | ) | ||||||
Income (Loss) from discontinued operations | (4 | ) | 9 | - | 2 |
September 30, 2006 | December 31, 2005 | ||||||
Current assets held for sale: | |||||||
Trade receivables | 8 | 30 | |||||
Other receivables | 4 | 51 | |||||
Deferred income taxes | 3 | 2 | |||||
Inventories | - | 36 | |||||
15 | 119 | ||||||
Long-term assets held for sale: | |||||||
Deferred charges and other assets | - | 13 | |||||
Property, plant and equipment - net | 2 | 2 | |||||
2 | 15 | ||||||
Current liabilities of operations held for sale: | |||||||
Payables and accrued liabilities | 11 | 62 | |||||
11 | 62 |
Third Quarter | Nine Months | ||||||||||||
Periods ended September 30 | 2006 | 2005 | 2006 | 2005 | |||||||||
Numerator: | |||||||||||||
Income from continuing operations | 460 | 72 | 1,368 | 488 | |||||||||
Less: dividends on preference shares | (3 | ) | (2 | ) | (8 | ) | (5 | ) | |||||
Income from continuing operations attributable to | |||||||||||||
common shareholders | 457 | 70 | 1,360 | 483 | |||||||||
Denominator (number of common shares in millions): | |||||||||||||
Weighted average of outstanding shares - basic | 376 | 370 | 375 | 370 | |||||||||
Effect of dilutive stock options | 1 | - | 1 | 1 | |||||||||
Adjusted weighted average of outstanding shares - diluted | 377 | 370 | 376 | 371 | |||||||||
Earnings per common share - basic | 1.21 | 0.19 | 3.63 | 1.30 | |||||||||
Earnings per common share - diluted | 1.21 | 0.19 | 3.62 | 1.30 |
Severance Costs | Asset Impairment Charges* | Other | Total | ||||||||||
Provision balance as at January 1, 2005 | 200 | - | 46 | 246 | |||||||||
2005: | |||||||||||||
Provisions transferred to Novelis | (31 | ) | - | (14 | ) | (45 | ) | ||||||
Charges recorded in the statement of income | 204 | 400 | 81 | 685 | |||||||||
Cash payments - net | (118 | ) | - | (40 | ) | (158 | ) | ||||||
Non-cash items | (12 | ) | (400 | ) | (16 | ) | (428 | ) | |||||
Provision balance as at December 31, 2005 | 243 | - | 57 | 300 | |||||||||
Nine months, 2006: | |||||||||||||
Charges recorded in the statement of income | 60 | 41 | 29 | 130 | |||||||||
Cash payments - net | (117 | ) | - | (33 | ) | (150 | ) | ||||||
Non-cash items | 11 | (41 | ) | 5 | (25 | ) | |||||||
Provision balance as at September 30, 2006 | 197 | - | 58 | 255 |
Quarter ended September 30, 2006 | Severance Costs | Asset Impairment Provisions | Other | Total | |||||||||
Bauxite and Alumina | 1 | - | - | 1 | |||||||||
Primary Metal | 5 | - | - | 5 | |||||||||
Engineered Products | 2 | - | 1 | 3 | |||||||||
Packaging | - | 1 | 12 | 13 | |||||||||
Other | - | - | - | - | |||||||||
Total | 8 | 1 | 13 | 22 | |||||||||
Nine months ended September 30, 2006 | |||||||||||||
Bauxite and Alumina | 2 | 11 | 2 | 15 | |||||||||
Primary Metal | 20 | 23 | 8 | 51 | |||||||||
Engineered Products | 12 | - | 2 | 14 | |||||||||
Packaging | 25 | 7 | 17 | 49 | |||||||||
Other | 1 | - | - | 1 | |||||||||
Total | 60 | 41 | 29 | 130 |
(1) | The operating segments include the Company’s proportionate share of joint ventures (including joint ventures accounted for using the equity method) and certain other equity-accounted investments as they are managed within each operating segment, with the adjustments for these investments shown on a separate line in the reconciliation to Income from continuing operations; and |
(2) | Pension costs for the operating segments are based on the normal current service cost with all actuarial gains, losses and other adjustments being included in Intersegment and other. |
Third Quarter | Nine Months | ||||||||||||
Periods ended September 30 | 2006 | 2005 | 2006 | 2005 | |||||||||
Sales and operating revenues - Intersegment | |||||||||||||
Bauxite and Alumina | 534 | 397 | 1,464 | 1,172 | |||||||||
Primary Metal | 624 | 466 | 1,851 | 1,460 | |||||||||
Engineered Products | 65 | 4 | 159 | 172 | |||||||||
Packaging | 2 | 3 | 3 | 5 | |||||||||
Other | (1,225 | ) | (870 | ) | (3,477 | ) | (2,809 | ) | |||||
- | - | - | - |
Third Quarter | Nine Months | ||||||||||||
Periods ended September 30 | 2006 | 2005 | 2006 | 2005 | |||||||||
Sales and operating revenues - Third Parties | |||||||||||||
Bauxite and Alumina | 495 | 352 | 1,290 | 1,094 | |||||||||
Primary Metal | 2,060 | 1,695 | 6,331 | 5,030 | |||||||||
Engineered Products | 1,744 | 1,393 | 5,291 | 4,542 | |||||||||
Packaging | 1,473 | 1,439 | 4,485 | 4,601 | |||||||||
Adjustments for equity-accounted joint ventures and | |||||||||||||
certain investments | (12 | ) | (5 | ) | (1 | ) | (35 | ) | |||||
Other | 9 | 13 | 26 | 39 | |||||||||
5,769 | 4,887 | 17,422 | 15,271 |
Third Quarter | Nine Months | ||||||||||||
Periods ended September 30 | 2006 | 2005 | 2006 | 2005 | |||||||||
Business Group Profit (BGP) | |||||||||||||
Bauxite and Alumina | 198 | 98 | 453 | 306 | |||||||||
Primary Metal | 675 | 364 | 2,207 | 1,220 | |||||||||
Engineered Products | 101 | 106 | 399 | 322 | |||||||||
Packaging | 161 | 157 | 441 | 490 | |||||||||
Adjustments for equity-accounted joint ventures and | |||||||||||||
certain investments | (87 | ) | (61 | ) | (244 | ) | (212 | ) | |||||
Adjustments for mark-to-market of derivatives | 16 | (19 | ) | 37 | 11 | ||||||||
Depreciation and amortization | (273 | ) | (266 | ) | (782 | ) | (806 | ) | |||||
Intersegment, corporate offices and other | (159 | ) | (131 | ) | (425 | ) | (379 | ) | |||||
Equity income | 41 | 16 | 106 | 73 | |||||||||
Interest | (63 | ) | (92 | ) | (208 | ) | (267 | ) | |||||
Income taxes | (146 | ) | (101 | ) | (610 | ) | (269 | ) | |||||
Minority interests | (4 | ) | 1 | (6 | ) | (1 | ) | ||||||
Income from continuing operations | 460 | 72 | 1,368 | 488 |
Number of Shares Under Options (in thousands) | Weighted Average Exercise Price (CAN$) | ||||||
Outstanding - January 1, 2006 | 11,295 | 43.40 | |||||
Granted | 167 | 49.59 | |||||
Exercised | (2,877 | ) | 39.27 | ||||
Forfeited | (81 | ) | 45.30 | ||||
Outstanding - September 30, 2006 | 8,504 | 44.90 | |||||
Exercisable - September 30, 2006 | 3,532 | 40.84 |
NUMBER OF SHARES UNDER OPTIONS (IN THOUSANDS) | RANGE OF EXERCISE PRICE (CAN$) | WEIGHTED AVERAGE EXERCISE PRICE (CAN$) | WEIGHTED AVERAGE REMAINING CONTRACTUAL LIFE (YEARS) |
509 | 30.43-35.00 | 33.81 | 5.00 |
2,349 | 35.01-40.00 | 38.35 | 8.41 |
983 | 40.01-45.00 | 40.93 | 3.68 |
1,448 | 45.01-50.00 | 46.62 | 6.94 |
3,215 | 50.01-56.34 | 51.88 | 6.68 |
8,504 | 30.43-56.34 | 44.90 | 6.75 |
NUMBER OF SHARES UNDER OPTIONS (IN THOUSANDS) | RANGE OF EXERCISE PRICE (CAN$) | WEIGHTED AVERAGE EXERCISE PRICE (CAN$) | WEIGHTED AVERAGE REMAINING CONTRACTUAL LIFE (YEARS) |
509 | 30.43-35.00 | 33.81 | 5.00 |
1,445 | 35.01-40.00 | 38.41 | 8.10 |
687 | 40.01-45.00 | 40.99 | 3.30 |
489 | 45.01-50.00 | 46.34 | 6.02 |
402 | 50.01-56.34 | 51.56 | 4.21 |
3,532 | 30.43-56.34 | 40.84 | 5.99 |
Dividend yield (%) | 1.66 | |
Expected volatility (%) | 31.78 | |
Risk-free interest rate (%) | 4.35-4.86 | |
Original term of awards (years) | 10 |
Number of Shares Under Pechiney Options (in thousands) | Weighted Average Exercise Price (€) | ||||||
Outstanding - January 1, 2006 | 3,670 | 31.63 | |||||
Exercised | (921 | ) | 29.23 | ||||
Forfeited | (26 | ) | 28.95 | ||||
Outstanding and Exercisable - September 30, 2006 | 2,723 | 32.46 |
NUMBER OF SHARES UNDER OPTIONS (IN THOUSANDS) | RANGE OF EXERCISE PRICE (€) | WEIGHTED AVERAGE EXERCISE PRICE (€) | WEIGHTED AVERAGE REMAINING CONTRACTUAL LIFE (YEARS) |
350 | 16.73-19.92 | 19.79 | 6.33 |
45 | 23.50-23.92 | 23.67 | 1.96 |
922 | 29.07-31.36 | 29.95 | 3.80 |
1,406 | 37.53-37.67 | 37.54 | 5.43 |
2,723 | 16.73-37.67 | 32.46 | 4.94 |
As part of the cost of the acquisition of Pechiney, an amount of $80 was recognized for the fair value of the Pechiney options and credited to Additional paid-in capital. The Black-Scholes valuation model was used to determine the fair value of Pechiney options. The weighted average assumptions used were a dividend yield of 2.19%, an expected volatility of 52.50%, a market risk-free interest rate of 3.99% and an expected life of seven years.
Number of SPAUs (in thousands) | Weighted Average Exercise Price (CAN$) | ||||||
Outstanding - January 1, 2006 | 1,019 | 42.09 | |||||
Exercised | (297 | ) | 39.45 | ||||
Forfeited | (7 | ) | 47.44 | ||||
Outstanding - September 30, 2006 | 715 | 43.13 | |||||
Exercisable - September 30, 2006 | 343 | 39.97 |
NUMBER OF SPAUs (IN THOUSANDS) | RANGE OF EXERCISE PRICE (CAN$) | WEIGHTED AVERAGE EXERCISE PRICE (CAN$) | WEIGHTED AVERAGE REMAINING CONTRACTUAL LIFE (YEARS) |
83 | 34.04-35.00 | 34.04 | 4.17 |
158 | 35.01-40.00 | 38.26 | 8.95 |
132 | 40.01-45.00 | 40.86 | 4.41 |
179 | 45.01-50.00 | 46.16 | 5.62 |
163 | 50.01-50.99 | 50.99 | 7.94 |
715 | 34.04-50.99 | 43.13 | 6.50 |
NUMBER OF SPAUs (IN THOUSANDS) | RANGE OF EXERCISE PRICE (CAN$) | WEIGHTED AVERAGE EXERCISE PRICE (CAN$) | WEIGHTED AVERAGE REMAINING CONTRACTUAL LIFE (YEARS) |
83 | 34.04-35.00 | 34.04 | 4.17 |
89 | 35.01-40.00 | 38.26 | 8.94 |
81 | 40.01-45.00 | 40.86 | 4.04 |
88 | 45.01-50.00 | 46.16 | 4.22 |
2 | 50.01-50.99 | 50.99 | 4.83 |
343 | 34.04-50.99 | 39.97 | 5.39 |
Alcan expected volatility (%) | 30.56 | ||
Alcan expected correlation with market | 0.48 | ||
Risk-free interest rate (%) | 4.58 | ||
Expected market volatility (S&P 500) (%) | 10.82 |
2004 AND 2005 PEER GROUP | VOLATILITY | CORRELATION WITH MARKET |
Peer group average | 27.23% | 0.45 |
Peer group high | 113.95% | 0.69 |
Peer group low | 12.65% | 0.11 |
Third Quarter | Nine Months | ||||||||||||
Periods ended September 30 | 2006 | 2005 | 2006 | 2005 | |||||||||
Current | 73 | 15 | 310 | 141 | |||||||||
Deferred | 73 | 86 | 300 | 128 | |||||||||
146 | 101 | 610 | 269 |
Third Quarter | Nine Months | ||||||||||||
Periods ended September 30 | 2006 | 2005 | 2006 | 2005 | |||||||||
Asset impairment charges not included in restructuring | |||||||||||||
programs | 11 | 1 | 16 | 13 | |||||||||
Loss (Gain) on disposal of businesses and investments - | |||||||||||||
net | (4 | ) | (5 | ) | (8 | ) | 11 | ||||||
Provision for (Recoveries of) legal claims | 1 | 1 | (53 | ) | 12 | ||||||||
Environmental provisions | - | - | 9 | 8 | |||||||||
Interest revenue | (12 | ) | (7 | ) | (27 | ) | (38 | ) | |||||
Exchange losses (gains) - net | (9 | ) | 31 | 74 | (9 | ) | |||||||
Derivative losses (gains) - net | 7 | 16 | (37 | ) | 21 | ||||||||
Other | 17 | (14 | ) | 8 | (8 | ) | |||||||
11 | 23 | (18 | ) | 10 |
September 30, 2006 | December 31, 2005 | ||||||
Aluminum operating segments | |||||||
Aluminum | 1,051 | 912 | |||||
Raw materials | 764 | 704 | |||||
Other supplies | 469 | 365 | |||||
2,284 | 1,981 | ||||||
Packaging operating segments | |||||||
Raw materials and other supplies | 337 | 297 | |||||
Work in progress | 161 | 133 | |||||
Finished goods | 322 | 323 | |||||
820 | 753 | ||||||
3,104 | 2,734 |
Third Quarter | Nine Months | ||||||||||||
Periods ended September 30 | 2006 | 2005 | 2006 | 2005 | |||||||||
Income Statement | |||||||||||||
Interest on long-term debt | 79 | 88 | 247 | 254 | |||||||||
Capitalized interest | (22 | ) | (8 | ) | (56 | ) | (18 | ) |
September 30, 2006 | December 31, 2005 | ||||||
Balance Sheet | |||||||
Payables and accrued liabilities include the following: | |||||||
Trade payables | 1,918 | 1,855 | |||||
Other accrued liabilities | 1,617 | 1,520 | |||||
Derivatives | 635 | 508 | |||||
Income and other taxes | 234 | 116 | |||||
Accrued employment costs | 588 | 609 | |||||
4,992 | 4,608 |
13. COMMITMENTS AND CONTINGENCIES
Third Quarter | Nine Months | ||||||||||||
Periods ended September 30 | 2006 | 2005 | 2006 | 2005 | |||||||||
Net income | 456 | 81 | 1,364 | 490 | |||||||||
Other comprehensive income (loss): | |||||||||||||
Net change in deferred translation adjustments | 83 | 4 | 479 | (555 | ) | ||||||||
Net change in excess of market value over book value of | |||||||||||||
"available-for-sale" securities | 2 | - | 2 | (4 | ) | ||||||||
Net change in unreleased gains and losses on | |||||||||||||
derivatives, net of tax of ($46) and $3, respectively, | |||||||||||||
for the quarter and nine months ended | |||||||||||||
September 30, 2006 (2005: $23 and ($6)) | |||||||||||||
Net change from periodic revaluations | 52 | (55 | ) | (136 | ) | (12 | ) | ||||||
Net amount reclassified to income | 44 | 6 | 142 | 26 | |||||||||
Net change in minimum pension liability, net of tax of | |||||||||||||
$4 and $13, respectively, for the quarter and nine | |||||||||||||
months ended September 30, 2006 (2005: ($4) and | |||||||||||||
($16)) | (10 | ) | 12 | (28 | ) | 8 | |||||||
171 | (33 | ) | 459 | (537 | ) | ||||||||
Comprehensive income (loss) | 627 | 48 | 1,823 | (47 | ) |
September 30, 2006 | December 31, 2005 | ||||||
Accumulated other comprehensive income (loss) | |||||||
Deferred translation adjustments | 743 | 264 | |||||
Unrealized gain on "available-for-sale" securities | 6 | 4 | |||||
Unreleased loss on derivatives | (209 | ) | (215 | ) | |||
Minimum pension liability | (478 | ) | (450 | ) | |||
Accumulated other comprehensive income (loss) | 62 | (397 | ) |
Pension Benefits | Other Benefits | ||||||||||||||||||||||||
Third Quarter | Nine Months | Third Quarter | Nine Months | ||||||||||||||||||||||
Periods ended September 30 | 2006 | 2005 | 2006 | 2005 | 2006 | 2005 | 2006 | 2005 | |||||||||||||||||
Service cost | 51 | 42 | 151 | 124 | 4 | 3 | 12 | 9 | |||||||||||||||||
Interest cost on benefit obligation | 140 | 136 | 418 | 411 | 14 | 14 | 42 | 42 | |||||||||||||||||
Expected return on plan assets | (153 | ) | (137 | ) | (457 | ) | (412 | ) | - | - | - | - | |||||||||||||
Amortization: | |||||||||||||||||||||||||
Actuarial (gains) losses | 29 | 23 | 85 | 71 | 4 | - | 12 | (2 | ) | ||||||||||||||||
Prior service cost | 18 | 16 | 54 | 46 | - | - | - | - | |||||||||||||||||
Net periodic benefit cost | 85 | 80 | 251 | 240 | 22 | 17 | 66 | 49 |
Third Quarter | Second Quarter | Nine Months Ended September 30 | ||||||||||||||
2006 | 2005 | 2006 | 2006 | 2005 | ||||||||||||
Included in income from continuing operations are: | ||||||||||||||||
Foreign currency balance sheet translation | - | (115 | ) | (100 | ) | (109 | ) | (81 | ) | |||||||
Other Specified Items (OSIs) | (1 | ) | (10 | ) | (2 | ) | (13 | ) | (137 | ) | ||||||
Income from continuing operations | 460 | 72 | 454 | 1,368 | 488 | |||||||||||
Income (Loss) from discontinued operations | (4 | ) | 9 | 1 | - | 2 | ||||||||||
Cumulative effect of accounting change | - | - | - | (4 | ) | - | ||||||||||
Net income | 456 | 81 | 455 | 1,364 | 490 | |||||||||||
Basic earnings per common share ($ per common share) | �� | |||||||||||||||
Income from continuing operations | 1.21 | 0.19 | 1.21 | 3.63 | 1.30 | |||||||||||
Net income | 1.20 | 0.21 | 1.21 | 3.62 | 1.31 | |||||||||||
Average number of common shares outstanding (millions) | 376.1 | 370.3 | 375.1 | 374.7 | 370.2 |
Third Quarter | Second Quarter | Nine Months Ended September 30 | ||||||||||||||
2006 | 2005 | 2006 | 2006 | 2005 | ||||||||||||
Sales & operating revenues | 5,769 | 4,887 | 6,103 | 17,422 | 15,271 | |||||||||||
Volumes (Kt) | ||||||||||||||||
Ingot products * | 728 | 801 | 765 | 2,242 | 2,269 | |||||||||||
Aluminum used in engineered products & packaging | 323 | 311 | 341 | 1,001 | 974 | |||||||||||
Total aluminum volume | 1,051 | 1,112 | 1,106 | 3,243 | 3,243 | |||||||||||
Aluminum pricing data ($ per tonne) | ||||||||||||||||
Ingot product realizations * | 2,598 | 1,959 | 2,709 | 2,587 | 2,017 | |||||||||||
Average LME 3-month price (1-month lag) | 2,528 | 1,811 | 2,661 | 2,519 | 1,843 | |||||||||||
* The bulk of Alcan’s ingot product sales are based on the LME 3-month price with a one month lag plus a local market premium and any applicable product premium. |
Sales and operating revenues of $5,769 were up $882 compared to the year-ago quarter mainly reflecting higher aluminum prices, and favourable pricing, mix and volume in downstream businesses. Compared to the second quarter of 2006, sales and operating revenues declined by $334 mainly as a result of lower metal prices and volumes, partially offset by pricing and mix improvements in Engineered Products.
Total aluminum volume was down 61kt from the year-ago quarter mainly due to lower sales in Europe, reflecting the closure of the Steg smelter in Switzerland and the production interruption at the ISAL smelter in Iceland. Volumes were down 55kt sequentially also as result of lower sales in Europe, including the impact of lost production at the ISAL smelter.
The average realized price on sales of ingot products during the third quarter was up $639 per tonne from the year-ago quarter and down $111 per tonne from the second quarter of 2006. The increase over the year-ago quarter reflected the impact of higher LME aluminum prices while the sequential quarter decline reflected lower aluminum prices.
Third Quarter | Second Quarter | |||||||||
2006 | 2005 | 2006 | ||||||||
Other Specified Items (after-tax) | ||||||||||
Synergy costs | - | (15 | ) | - | ||||||
Restructuring charges | (17 | ) | (10 | ) | (42 | ) | ||||
Asset impairments | (7 | ) | (1 | ) | (24 | ) | ||||
Gains (losses) from non-routine sales of assets, businesses and | ||||||||||
investments | 7 | 15 | 8 | |||||||
Tax adjustments | 16 | 4 | 63 | |||||||
Other | - | (3 | ) | (7 | ) | |||||
Other Specified Items | (1 | ) | (10 | ) | (2 | ) |
Included in income from continuing operations for the third quarter of 2006 were mark-to-market gains on derivatives of $0.03 per common share as compared to losses of $0.04 a year earlier and gains of $0.03 in the second quarter of 2006. Results for the third quarter of 2006 included non-cash pre-tax expenses of $3 for stock options as compared to $4 in the year-ago quarter and $11 in the second of 2006.
Net Income
Including results from discontinued operations, the Company reported net income of $456 or $1.20 per common share, compared to net income of $81 or $0.21 per common share a year earlier and $455 or $1.21 per common share in the second quarter of 2006.
Operating Segment Review
The term "Business Group Profit" (BGP) is defined under "Definitions" at the end of the MD&A.
Third Quarter | Second Quarter | Nine Months Ended September 30 | ||||||||||||||
2006 | 2005 | 2006 | 2006 | 2005 | ||||||||||||
Business Group Profit (BGP) | ||||||||||||||||
Bauxite and Alumina | 198 | 98 | 126 | 453 | 306 | |||||||||||
Primary Metal | 675 | 364 | 774 | 2,207 | 1,220 | |||||||||||
Engineered Products | 101 | 106 | 144 | 399 | 322 | |||||||||||
Packaging | 161 | 157 | 134 | 441 | 490 | |||||||||||
Subtotal | 1,135 | 725 | 1,178 | 3,500 | 2,338 | |||||||||||
Equity accounted joint venture eliminations | (87 | ) | (61 | ) | (86 | ) | (244 | ) | (212 | ) | ||||||
Change in fair market value of derivatives | 16 | (19 | ) | 7 | 37 | 11 | ||||||||||
1,064 | 645 | 1,099 | 3,293 | 2,137 | ||||||||||||
Corporate Items | ||||||||||||||||
Intersegment, corporate offices and other | (159 | ) | (131 | ) | (159 | ) | (425 | ) | (379 | ) | ||||||
Depreciation & amortization | (273 | ) | (266 | ) | (258 | ) | (782 | ) | (806 | ) | ||||||
Interest | (63 | ) | (92 | ) | (69 | ) | (208 | ) | (267 | ) | ||||||
Income taxes | (146 | ) | (101 | ) | (195 | ) | (610 | ) | (269 | ) | ||||||
Equity income | 41 | 16 | 37 | 106 | 73 | |||||||||||
Minority interests | (4 | ) | 1 | (1 | ) | (6 | ) | (1 | ) | |||||||
Income from continuing operations | 460 | 72 | 454 | 1,368 | 488 |
Bauxite and Alumina: BGP for the third quarter was a record high of $198, an increase of $100 compared to the year-ago quarter. Excluding OSIs and balance sheet translation effects, the year-over-year increase in BGP was $76 or 63%. This improvement mainly reflected higher LME-linked contract prices for alumina (reflecting the normal one-quarter lag) and insurance recoveries of $36 related to production losses at Gove during the past year, partially offset by lower volumes, mainly at QAL, commercial activities and higher operating and raw material costs. Because most of the insurance claims were made against Alcan’s internal insurance company, they were largely offset on a consolidated basis through a corresponding charge at the corporate level (see Corporate Items below). On a sequential basis, BGP for the B&A group was $72 above the previous quarter. Excluding OSIs and balance sheet translation effects, BGP increased by $52 or 36% reflecting higher LME-linked contract prices and insurance benefits at Gove. Results for the fourth quarter of 2006 are expected to be lower than the third quarter as a result of lower LME-linked contract prices and the non-recurrence of insurance recoveries recorded in the third quarter.
Primary Metal: BGP for the third quarter at $675 increased by $311 as compared to the year-ago quarter. The improvement mainly reflected the higher LME price, partially offset by the impact of higher input costs due mainly to alumina prices, energy costs and fuel-related raw materials, as well as lower metal shipments, mainly in Europe. The latter included the impact of closing the Steg smelter in Switzerland. On a sequential quarter basis, BGP decreased by $99 or 13%, mainly reflecting the 5% drop in LME prices, higher input costs due to the one-quarter lag in alumina prices, and higher energy and other fuel-related raw materials costs. These increases were partly offset by lower operating costs. Based on current metal prices, results for the fourth quarter of 2006 are expected to increase slightly as higher metal prices are partly offset by seasonal increases in scheduled maintenance.
Engineered Products: BGP for the third quarter was $101, down $5 or 5% from the year-ago third quarter. The negative year-over-year impact of higher costs for purchased aluminum and other key inputs was largely offset by strong performances from the group’s Cable and Composites businesses, which were buoyed by robust pricing and demand. On a sequential quarter basis, BGP declined $43 or 30% mainly due to normal summer slowing in Europe and an absence of the metal inventory timing benefits that had contributed to results in the second quarter, offset in part by stronger pricing and mix, mainly in Cable. With a normal seasonal pick-up in demand anticipated in Europe, results for the fourth quarter are expected to be moderately higher than the third quarter.
Packaging: BGP in the third quarter of $161 was up $4 or 2% from the prior year quarter. Excluding the impact of OSIs, foreign currency balance sheet translation effects and lost contributions from divested businesses, BGP improved by $10 or 6%. Growth across most businesses and cost reduction programs more than offset the adverse impact of raw material price increases, mainly in aluminum. On a sequential quarter basis, BGP improved by $27 or 20%. Excluding the impact of OSIs and balance sheet translation, BGP improved by $3 or 2%. Normal seasonal volume weakness and negative timing differences on the pass through of raw-material costs were more than offset by the benefits of restructuring and cost-reduction programs. For the fourth quarter of 2006, BGP is expected to be lower mainly due to seasonal volume declines and planned maintenance shut-downs.
Corporate Items
The Intersegment, corporate offices and other expense category includes corporate head office costs as well as other non-operating items and the elimination of profits on intersegment sales of aluminum. Included in this category was a $30 inter-company charge from the Bauxite and Alumina group to Alcan’s internal insurance company for claims related to lost production at the Gove refinery during the past year.
Depreciation and amortization expenses were $7 higher than in the year-ago quarter and $15 higher than in the second quarter, primarily reflecting an adjustment to charges at the Lynemouth smelter in the United Kingdom.
Interest expense, net of capitalized interest, was $29 lower than in the year-ago quarter reflecting a higher level of capitalized interest as well as lower debt levels. In the third quarter, capitalized interest was $22, mainly related to the Gove expansion, compared to $8 a year ago. Compared to the second quarter, interest expense declined $6 due mainly to lower debt levels and capitalized interest.
The Company's effective tax rate on income from continuing operations was 26% in the third quarter and 32% year to date. The effective tax rate was favourably impacted in the quarter as a result of settling a number of open taxation years with various tax authorities. This impact has been reported in Other Specified Items.
Share Repurchase Program
In accordance with its announcement on October 3, 2006, Alcan has established a share repurchase program. The Company will purchase up to 18,800,000 Common Shares, representing approximately 5% of the outstanding Common Shares at October 27, 2006, i.e. 376,407,558 Common Shares under a Normal Course Issuer Bid. The Common Shares purchased under the program will be cancelled.
Purchases may be made on the Toronto Stock Exchange and the New York Stock Exchange. Purchases could, if considered advisable by the Company, commence on November 2, 2006 and will terminate at the latest on November 1, 2007. As at November 7, 2006, Alcan had repurchased a total of 2,300,000 shares on the Toronto Stock Exchange and the New York Stock Exchange.
The Company considers the purchase and cancellation of Common Shares under this program to be an appropriate and desirable investment for Alcan.
From time to time, when Alcan does not possess material non-public information about itself or its securities, it may enter into a pre-determined plan with its securities broker to allow for the repurchase of Shares at times when Alcan ordinarily would not be active in the market due to its own internal calendar-based restricted trading policies. Any such plans entered into with Alcan’s securities broker will be adopted in accordance with the requirements of applicable Canadian securities laws and Rule 10b5-1 under the U.S. Securities Exchange Act of 1934.
Third Quarter | Second Quarter | Nine Months Ended September 30 | ||||||||||||||
2006 | 2005 | 2006 | 2006 | 2005 | ||||||||||||
Cash flow from operating activities in continuing operations | 803 | 655 | 771 | 1,936 | 747 | |||||||||||
Dividends | (79 | ) | (59 | ) | (59 | ) | (197 | ) | (175 | ) | ||||||
Capital expenditures | (576 | ) | (405 | ) | (469 | ) | (1,471 | ) | (1,103 | ) | ||||||
Free cash flow from continuing operations | 148 | 191 | 243 | 268 | (531 | ) |
September 30 | June 30 | |||||||||
Debt as a Percentage of Invested Capital | 2006 | 2005 | 2006 | |||||||
Debt | ||||||||||
Short-term borrowings | 346 | 284 | 349 | |||||||
Debt maturing within one year | 40 | 841 | 105 | |||||||
Debt not maturing within one year | 5,399 | 5,503 | 5,570 | |||||||
Debt of operations held for sale | - | 1 | - | |||||||
Total debt | 5,785 | 6,629 | 6,024 | |||||||
Equity | ||||||||||
Minority interests | 67 | 73 | 65 | |||||||
Redeemable non-retractable preference shares | 160 | 160 | 160 | |||||||
Common shareholders’ equity | 11,293 | 9,963 | 10,750 | |||||||
Total equity | 11,520 | 10,196 | 10,975 | |||||||
Total invested capital | 17,305 | 16,825 | 16,999 | |||||||
Debt as a percent of invested capital (%) | 33 | % | 39 | % | 35 | % |
The term “Debt as a percentage of invested capital” is defined under "Definitions" at the end of MD&A.
Debt as a percentage of invested capital as at September 30, 2006 was 33%, down from 35% at the end of the second quarter.
Effective in June 2006, the Company replaced its $3,000 multi-currency, five-year, committed global credit facility with a two-tranche, multi-currency, committed global credit facility with a syndicate of international banks: a $2,000 five-year tranche, and a $1,000 364-day tranche, which may be extended by two years at the Company’s option. The facility is available for general corporate purposes and is primarily used to support Alcan’s commercial paper programs.
As at November 8, 2006, Alcan has $1.2 billion of commercial paper outstanding, and as a result, the unused portion of the credit facility was $1.8 billion. Based on the Company's forecasts, the Company believes that the cash from continuing operations together with available credit facilities will be more than sufficient to meet the cash requirements of operations, planned capital expenditures, dividends and any short-term debt refinancing requirements. In addition, the Company believes that its ability to access global capital markets provides any additional liquidity that may be required to meet unforeseen events.
Investment Activities
In the third quarter of 2006, cash used for investment activities was $499 compared to $295 in the year-ago quarter. Both the current and year-ago quarter balances mainly reflect capital expenditures of $576 and $405, respectively. Excluding capital expenditures on the Gove expansion, capital spending was 101% and 56% of depreciation and amortization expense for the third quarter and prior-year quarter, respectively.
Contractual Obligations
The Company has future obligations under various contracts relating to debt payments, capital and operating leases, long-term purchase arrangements, pensions and other post-employment benefits, and guarantees. The table below provides a summary of these contractual obligations (based on undiscounted future cash flows) as at September 30, 2006. There are no material off-balance sheet arrangements.
Contractual Obligations As at September 30, 2006 | Payments due by Period | |||||||||||||||
Total | Less than One Year | 1 - 3 Years | 3 - 5 Years | More than 5 Years | ||||||||||||
Long-term debt | 5,439 | 40 | 496 | 49 | 4,854 | |||||||||||
Interest payments (1) | 3,839 | 86 | 602 | 555 | 2,596 | |||||||||||
Capital lease obligations | 17 | 2 | 8 | - | 7 | |||||||||||
Operating leases | 491 | 45 | 174 | 110 | 162 | |||||||||||
Purchase obligations | 4,890 | 562 | 963 | 616 | 2,749 | |||||||||||
Unfunded pension plans (2) | 2,326 | 18 | 128 | 131 | 2,049 | |||||||||||
Other post-employment benefits (2) | 2,602 | 17 | 150 | 167 | 2,268 | |||||||||||
Funded pension plans (2),(3) | (3 | ) | 65 | 528 | 545 | (3 | ) | |||||||||
Guarantees (4) | 182 | 9 | 101 | - | 72 | |||||||||||
Total | 844 | 3,150 | 2,173 |
Selected financial data for each of the Company's three most recently completed financial years is as follows: | ||||||||||
31 December | ||||||||||
2005 | 2004 | 2003 | ||||||||
Sales and operating revenues | 20,320 | 24,948 | 13,850 | |||||||
Income from continuing operations | 155 | 243 | 262 | |||||||
Net income | 129 | 258 | 64 | |||||||
Total assets | 26,638 | 33,341 | 31,948 | |||||||
Total long-term debt | 6,067 | 6,914 | 7,778 | |||||||
($ per common share) | ||||||||||
Income from continuing operations - basic and diluted | 0.40 | 0.64 | 0.79 | |||||||
Net income - basic and diluted | 0.33 | 0.69 | 0.18 | |||||||
Dividends | 0.60 | 0.60 | 0.60 |
Selected Quarterly Information
Selected unaudited financial data for each of the Company's eight most recently completed quarters is as follows:
Q3-06 | Q2-06 | Q1-06 | Q4-05 | Q3-05 | Q2-05 | Q1-05 | Q4-04 | ||||||||||||||||||
Sales and operating revenues | 5,769 | 6,103 | 5,550 | 5,049 | 4,887 | 5,206 | 5,178 | 6,536 | |||||||||||||||||
Income (Loss) from continuing operations | 460 | 454 | 454 | (333 | ) | 72 | 208 | 208 | (347 | ) | |||||||||||||||
Net income (Loss) | 456 | 455 | 453 | (361 | ) | 81 | 191 | 218 | (346 | ) | |||||||||||||||
($ per common share) | |||||||||||||||||||||||||
Income (Loss) from continuing operations - basic | 1.21 | 1.21 | 1.21 | (0.91 | ) | 0.19 | 0.56 | 0.56 | (0.95 | ) | |||||||||||||||
Income (Loss) from continuing operations - diluted | 1.21 | 1.20 | 1.20 | (0.91 | ) | 0.19 | 0.56 | 0.56 | (0.95 | ) | |||||||||||||||
Net income (Loss) - basic | 1.20 | 1.21 | 1.21 | (0.98 | ) | 0.21 | 0.52 | 0.58 | (0.94 | ) | |||||||||||||||
Net income (Loss) - diluted | 1.20 | 1.20 | 1.20 | (0.98 | ) | 0.21 | 0.52 | 0.58 | (0.94 | ) |
Commitments and Contingencies
The Company's commitments and contingencies are described in note 13 - Commitments and Contingencies, to the Consolidated Financial Statements.
Related Party Transactions
The only related party transactions are those with the joint ventures accounted for under the equity method. These transactions are undertaken on an arm’s length, negotiated basis. For more details, refer to note 13 - Commitments and Contingencies, to the Consolidated Financial Statements in the most recent Annual Report on Form 10-K.
Accounting Policies
The preparation of financial statements in conformity with United States GAAP requires management to make estimates, judgments 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 periods. The most significant estimates are associated with the critical accounting policies relating to post-retirement benefits; environmental liabilities; property, plant and equipment; goodwill; income taxes; and business combinations. These critical accounting policies are those that are both most important to the portrayal of the Company’s financial condition and results and require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
The Company's critical accounting policies are more fully described in note 3 - Summary of significant accounting policies, to the Consolidated Financial Statements and in MD&A, contained in the most recent Annual Report on Form 10-K.
Cautionary Statement
Statements made in this document which describe the Company's or management's objectives, projections, estimates, expectations or predictions of the future may be "forward-looking statements" within the meaning of securities laws which can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," "estimates," "anticipates" or the negative thereof or other variations thereon. All statements that address the Company's expectations or projections about the future including statements about the Company's growth, cost reduction goals, operations, reorganization plans, expenditures and financial results are forward-looking statements. Such statements may be based on the Company’s own research and analysis. The Company cautions that, by their nature, forward-looking statements involve risk and uncertainty and that the Company's actual actions or results could differ materially from those expressed or implied in such forward-looking statements or could affect the extent to which a particular projection is realized. Reference should be made to the Company’s most recent Annual Report on Form 10-K for a list of factors that could cause such differences.
Important factors which could cause such differences include: changes in global supply and demand conditions for aluminum and other products; changes in aluminum ingot prices and changes in raw material costs and availability; changes in the relative value of various currencies; cyclical demand and pricing within the principal markets for the Company's products; changes in government regulations, particularly those affecting environmental, health or safety compliance; fluctuations in the supply of and prices for power in the areas in which the Company maintains production facilities; the consequences of transferring most of the aluminum rolled products businesses operated by the Company to Novelis Inc.; potential discovery of unanticipated commitments or other liabilities associated with the acquisition and integration or disposition of businesses; major changes in technology that affect the Company’s competitiveness; the risk of significant losses from trading operations, including losses due to market and credit risks associated with derivatives; changes in prevailing interest rates and equity market returns related to pension plan investments; potential catastrophic damage, increased insurance and security costs and general uncertainties associated with the increased threat of terrorism or war; the effect of international trade disputes on the Company’s ability to import materials, export its products and compete internationally; economic, regulatory and political factors within the countries in which the Company operates or sells its products; relationships with, and financial and operating conditions of, customers and suppliers; the effect of integrating acquired businesses and the ability to attain expected benefits; and; other factors affecting the Company's operations including, but not limited to, litigation, labour relations and negotiations and fiscal regimes.
The Company undertakes no obligation to release publicly the results of any future revisions it may make to forward-looking statements to reflect events or circumstances after the date of this quarterly report or to reflect the occurrence of unanticipated events. Furthermore, the Company undertakes no obligation, in relation to future quarterly earnings disclosures, to release publicly any information on an interim basis prior to the final earnings disclosure.
Definitions
“$” all amounts are in U.S. dollars.
“Business Group Profit” (BGP) comprises earnings before interest, income taxes, minority interests, depreciation and amortization and excludes certain items, such as corporate costs, restructuring costs (relating to major corporate-wide acquisitions or initiatives), impairment and other special charges, pension actuarial gains, losses and other adjustments, and unrealized gains and losses on derivatives, that are not under the control of the business groups or are not considered in the measurement of their profitability. These items are generally managed by the Company's corporate head office, which focuses on strategy development and oversees governance, policy, legal, compliance, human resources and finance matters. Financial information for individual business groups includes the results of certain joint ventures and other investments accounted for using the equity method on a proportionately consolidated basis, which is consistent with the way the business groups are managed. However, the BGP of these joint ventures and equity-accounted investments is removed from total BGP for the Company and the net after-tax results are reported as equity income. The unrealized change in the fair market value of derivatives has been removed from individual business group results and is shown on a separate line within total BGP. This presentation provides a more accurate portrayal of underlying business group results and is in line with the Company’s portfolio approach to risk management.
“Debt as a percentage of invested capital” does not have a uniform definition. Because other issuers may calculate debt as a percentage of invested capital differently, Alcan’s calculation may not be comparable to other companies’ calculations. The figure is calculated by dividing borrowings by total invested capital. Total invested capital is equal to the sum of borrowings and equity, including minority interests. The Company believes that debt as a percentage of invested capital can be a useful measure of its financial leverage as it indicates the extent to which it is financed by debt holders. The measure is widely used by the investment community and credit rating agencies to assess the relative amounts of capital put at risk by debt holders and equity investors.
“Derivatives” including forward contracts, swaps and options are financial instruments used by the Company to manage the specific risks arising from fluctuations in exchange rates, interest rates, aluminum prices and other commodity prices. Mark-to-market gains and losses on derivatives will be offset over time by gains and losses on the underlying exposures.
“Foreign currency balance sheet translation” effects largely arise from translating monetary items (principally deferred income taxes and long-term liabilities) denominated in Canadian and Australian dollars into U.S. dollars for reporting purposes. Although these effects are primarily non-cash in nature, they can have a significant impact on the Company’s net income.
“Free cash flow from continuing operations” consists of cash from operating activities in continuing operations less capital expenditures and dividends. Management believes that free cash flow, for which there is no comparable GAAP measure, is relevant to investors as it provides an indication of the cash generated internally that is available for investment opportunities and debt service.
“GAAP” refers to Generally Accepted Accounting Principles.
“LME” refers to the London Metal Exchange.
“Other Specified Items” (OSIs) include, for example: restructuring and synergy charges; asset impairment charges; gains and losses on non-routine sales of assets, businesses or investments; unusual gains and losses from legal claims and environmental matters; gains and losses on the redemption of debt; income tax reassessments related to prior years and the effects of changes in income tax rates; and other items that, in Alcan’s view, do not typify normal operating activities.
All tonnages are stated in metric tonnes, equivalent to 2,204.6 pounds.
All figures are unaudited.
Additional information on Alcan is available on the Company's website at www.alcan.com and the Company's regulatory filings can be viewed on the Canadian Securities Administrators' site at www.sedar.com and on the U.S. Securities and Exchange Commission's site at www.sec.gov. All website addresses contained in this report are textual references and information from referenced websites is not incorporated by reference into this report. The number of common shares outstanding as at November 1, 2006 is 376,407,559.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
2011 | |||||||||
and | Nominal | Fair | |||||||
(in US$ millions, except contract rates) | 2006 | 2007 | 2008 | 2009 | 2010 | Thereafter | Amount | Value | |
FORWARD CONTRACTS | |||||||||
To buy USD against the foreign currency | |||||||||
GBP | Nominal amount | 5 | - | - | - | - | - | 5 | - |
Average contract rate | 0.536 | - | - | - | - | - | |||
CHF | Nominal amount | 29 | 2 | - | 1 | - | - | 32 | 1 |
Average contract rate | 1.219 | 1.237 | - | 1.166 | - | - | |||
JPY | Nominal amount | 25 | 1 | - | - | - | - | 26 | 1 |
Average contract rate | 112.2 | 113.6 | - | - | - | - | |||
MXN | Nominal amount | 6 | 4 | 1 | - | - | - | 11 | - |
Average contract rate | 11.01 | 10.97 | 11.29 | - | - | - | |||
DKK | Nominal amount | 3 | 1 | - | - | - | - | 4 | - |
Average contract rate | 5.883 | 5.788 | - | - | - | - | |||
Other | Nominal amount | 3 | 1 | - | - | - | - | 4 | - |
To sell USD against the foreign currency | |||||||||
GBP | Nominal amount | 23 | - | - | - | - | - | 23 | - |
Average contract rate | 0.529 | - | - | - | - | - | |||
AUD | Nominal amount | 21 | - | - | - | - | - | 21 | 1 |
Average contract rate | 1.378 | - | - | - | - | - | |||
BRL | Nominal amount | 12 | 45 | - | - | - | - | 57 | 8 |
Average contract rate | 2.54 | 2.669 | - | - | - | - | |||
CHF | Nominal amount | 7 | 3 | - | - | - | - | 10 | - |
Average contract rate | 1.217 | 1.207 | - | - | - | - |
2011 | |||||||||
and | Nominal | Fair | |||||||
(in US$ millions, except contract rates) | 2006 | 2007 | 2008 | 2009 | 2010 | Thereafter | Amount | Value | |
ISK | Nominal amount | 6 | - | - | - | - | - | 6 | - |
Average contract rate | 70.92 | - | - | - | - | - | |||
Other | Nominal amount | 1 | - | - | - | - | - | 1 | - |
To buy EUR against the foreign currency | |||||||||
USD | Nominal amount | 644 | 23 | - | - | - | - | 667 | 34 |
Average contract rate | 1.211 | 1.204 | - | - | - | - | |||
GBP | Nominal amount | 12 | 2 | - | - | - | - | 14 | - |
Average contract rate | 0.684 | 0.687 | - | - | - | - | |||
JPY | Nominal amount | 4 | 3 | - | - | - | - | 7 | - |
Average contract rate | 148.7 | 147.1 | - | - | - | - | |||
CAD | Nominal amount | 2 | 2 | - | - | - | - | 4 | - |
Average contract rate | 1.509 | 1.525 | - | - | - | - | |||
PLN | Nominal amount | - | 3 | - | - | - | - | 3 | - |
Average contract rate | - | 3.977 | - | - | - | - | |||
To sell EUR against the foreign currency | |||||||||
USD | Nominal amount | 592 | 26 | 12 | 1 | 1 | 2 | 634 | (31) |
Average contract rate | 1.213 | 1.224 | 1.113 | 1.333 | 1.349 | 1.373 | |||
GBP | Nominal amount | 1 | - | - | - | - | - | 1 | - |
Average contract rate | 0.681 | - | - | - | - | - | |||
CHF | Nominal amount | 25 | 15 | 4 | - | - | - | 44 | (1) |
Average contract rate | 1.555 | 1.545 | 1.506 | - | - | - | |||
CZK | Nominal amount | 8 | 3 | - | - | - | - | 11 | - |
Average contract rate | 28.37 | 28.32 | - | - | - | - | |||
2011 | |||||||||
and | Nominal | Fair | |||||||
(in US$ millions, except contract rates) | 2006 | 2007 | 2008 | 2009 | 2010 | Thereafter | Amount | Value | |
To buy GBP against the foreign currency | |||||||||
JPY | Nominal amount | - | 2 | - | - | - | - | 2 | - |
Average contract rate | - | 206.7 | - | - | - | - | |||
To sell GBP against the foreign currency | |||||||||
CHF | Nominal amount | 7 | - | - | - | - | - | 7 | - |
Average contract rate | 2.336 | - | - | - | - | - | |||
To sell CHF against the foreign currency | |||||||||
MXN | Nominal amount | 2 | - | - | - | - | - | 2 | - |
Average contract rate | 8.921 | - | - | - | - | - | |||
2010 | |||||||||
and | Nominal | Fair | |||||||
(in US$ millions, except contract rates) | 2005 | 2006 | 2007 | 2008 | 2009 | Thereafter | Amount | Value | |
FORWARD CONTRACTS | |||||||||
To buy USD against the foreign currency | |||||||||
GBP | Nominal amount | 17 | 6 | - | - | - | - | 23 | - |
Average contract rate | 0.562 | 0.571 | - | - | - | - | |||
CHF | Nominal amount | 7 | 26 | - | - | - | - | 33 | 1 |
Average contract rate | 1.220 | 1.233 | - | - | - | - | |||
JPY | Nominal amount | 3 | 3 | - | - | - | - | 6 | - |
Average contract rate | 111.5 | 108.9 | - | - | - | - | |||
MXN | Nominal amount | 1 | - | - | - | - | - | 1 | - |
Average contract rate | 10.91 | - | - | - | - | - | |||
To sell USD against the foreign currency | |||||||||
GBP | Nominal amount | 59 | 3 | - | - | - | - | 62 | (1) |
Average contract rate | 0.560 | 0.540 | - | - | - | - | |||
CHF | Nominal amount | 4 | 1 | - | - | - | - | 5 | - |
Average contract rate | 1.231 | 1.313 | - | - | - | - | |||
AUD | Nominal amount | 94 | 156 | - | - | - | - | 250 | 2 |
Average contract rate | 1.338 | 1.332 | - | - | - | - | |||
ISK | Nominal amount | 12 | - | - | - | - | - | 12 | - |
Average contract rate | 63.01 | - | - | - | - | - | |||
Other | Nominal amount | 2 | - | - | - | - | - | 2 | - |
To buy EUR against the foreign currency | |||||||||
USD | Nominal amount | 181 | 64 | 20 | - | - | - | 265 | 6 |
Average contract rate | 1.211 | 1.101 | 1.201 | - | - | - | |||
GBP | Nominal amount | 17 | 26 | 1 | - | - | - | 44 | - |
Average contract rate | 0.695 | 0.697 | 0.694 | - | - | - | |||
CHF | Nominal amount | 2 | - | - | - | - | - | 2 | - |
Average contract rate | 1.515 | - | - | - | - | - | |||
AUD | Nominal amount | 1 | - | - | - | - | - | 1 | - |
Average contract rate | 1.693 | - | - | - | - | - | |||
JPY | Nominal amount | 2 | 1 | 3 | - | ||||
Average contract rate | 132.7 | 135.2 | - | - | - | - | |||
CAD | Nominal amount | 2 | 4 | 2 | - | - | - | 8 | - |
Average contract rate | 1.592 | 1.490 | 1.525 | - | - | - | |||
SEK | Nominal amount | 1 | - | - | - | - | - | 1 | - |
Average contract rate | 9.399 | - | - | - | - | - |
2010 | |||||||||
and | Nominal | Fair | |||||||
(in US$ millions, except contract rates) | 2005 | 2006 | 2007 | 2008 | 2009 | Thereafter | Amount | Value | |
To sell EUR against the foreign currency | |||||||||
USD | Nominal amount | 206 | 1,295 | 24 | 12 | 1 | 3 | 1,541 | (28) |
Average contract rate | 1.245 | 1.200 | 1.223 | 1.113 | 1.333 | 1.367 | |||
GBP | Nominal amount | 1 | - | - | - | - | - | 1 | - |
Average contract rate | 0.693 | - | - | - | - | - | |||
CHF | Nominal amount | 13 | 25 | 2 | 1 | - | - | 41 | (1) |
Average contract rate | 1.527 | 1.504 | 1.522 | 1.513 | - | - | |||
CAD | Nominal amount | 1 | - | - | - | - | - | 1 | - |
Average contract rate | 1.628 | - | - | - | - | - | |||
ZAR | Nominal amount | 1 | 1 | - | - | - | - | 2 | - |
Average contract rate | 8.177 | 8.043 | - | - | - | - |
To buy CHF against the foreign currency | |||||||||
AUD | Nominal amount | 1 | 1 | - | - | - | - | 2 | - |
Average contract rate | 1.107 | 1.087 | - | - | - | - | |||
JPY | Nominal amount | 5 | 2 | - | - | - | - | 7 | - |
Average contract rate | 88.26 | 87.27 | - | - | - | - | |||
DKK | Nominal amount | 1 | 1 | - | - | - | - | 2 | - |
Average contract rate | 4.857 | 4.847 | - | - | - | - | |||
To sell CHF against the foreign currency | |||||||||
Other | Nominal amount | 2 | - | - | - | - | - | 2 | - |
OPTIONS | |||||||||
To buy USD against the foreign currency | |||||||||
EUR | Nominal amount | 22 | 18 | - | - | - | - | 40 | - |
Average contract rate | 0.800 | 0.800 | - | - | - | - | |||
To sell USD against the foreign currency | |||||||||
EUR | Nominal amount | 9 | 137 | 20 | - | - | - | 166 | (1) |
Average contract rate | 1.028 | 0.759 | 0.758 | - | - | - |
Any negative impact of currency movements on the currency contracts that the Company has entered into to hedge identifiable foreign currency commitments to purchase or sell goods and services, would be offset by an equal and opposite favourable exchange impact on the commitments being hedged. Transactions in currency related financial instruments for which there is no underlying foreign currency exchange rate exposure to the Company are prohibited except for a small trading portfolio not exceeding $50 million. For accounting policies relating to currency contracts, see note 3 - Summary of Significant Accounting Policies on page 70 of the Company's most recent Annual Report on Form 10-K.
a) | Evaluation of Disclosure Controls and Procedures |
b) | Changes in Internal Control Over Financial Reporting |
(10.1) | Alcan Restricted Share Unit Plan, dated September 20, 2006. (Filed herewith.) |
(10.2) | Alcan Total Shareholder Return Performance Plan, dated September 20, 2006, as amended. (Filed herewith.) |
(10.3) | Alcan Executive Deferred Share Unit Plan, dated September 20, 2006, as amended. (Filed herewith.) |
(31.1) | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under Securities Exchange Act of 1934. |
(31.2) | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under Securities Exchange Act of 1934. |
(32.1) | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
(32.2) | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
&n bsp; /s/ Cesidio Ricci
; Cesidio Ricci
160; ; Vice President and Controller
(A Duly Authorized Officer)
Dated: 9 November 2006
(10.1) | Alcan Restricted Share Unit Plan, dated September 20, 2006. (Filed herewith.) |
(10.2) | Alcan Total Shareholder Return Performance Plan, dated September 20, 2006, as amended. (Filed herewith.) |
(10.3) | Alcan Executive Deferred Share Unit Plan, dated September 20, 2006, as amended. (Filed herewith.) |
(31.1) | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under Securities Exchange Act of 1934. |
(31.2) | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under Securities Exchange Act of 1934. |
(32.1) | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
(32.2) | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |